Philippines 10Y Bond Yield Hits Near 8-year High

The Philippines’ 10-year government bond yield surged toward 8%, hitting its highest level since late October 2018, as faster inflation and softer demand at government debt auctions weighed on bonds. Headline inflation accelerated to 7.2% in September from 6.1% in August, overshooting forecasts of 6.6% and matching April’s three-year high. The reading boosted expectations for another interest-rate increase by the Bangko Sentral ng Pilipinas, after policymakers already raised rates three times this year. Additionally, the peso has weakened about 6% so far, increasing imported-inflation risks. Elevated oil and food prices, along with risks from an El Niño-related drought, could prolong inflationary pressures, reinforcing expectations for a longer restrictive monetary policy stance. Meanwhile, demand for government debt has weakened, with the bid-to-cover ratio at a September five-year bond auction falling to 1.22, the lowest for the tenor since 2013.

Philippines 10 Year Government Bond Yield increased to 7.99%, the highest since October 2018. Over the past 4 weeks, Philippines 10Y Bond Yield gained 36.50 basis points, and in the last 12 months, it increased 168.00 basis points.

The Philippine’s 10-year government bond yield fell to around 7.36% in early August, further retreating from a two-month high of 7.58% touched in late July, as easing inflation strengthened expectations that the central bank could maintain a more cautious approach to monetary policy. Headline inflation slowed for a third consecutive month in July to 6.2%, below expectations of 6.4%, while core inflation eased to 4.2% after six months of gains. The softer price growth gave the Bangko Sentral ng Pilipinas more room to assess incoming data and the impact of its recent 50 bps in rate increases this year. However, inflation remained elevated at around twice the pace of other major Southeast Asian economies, driven by higher energy costs linked to the Iran conflict and peso weakness that raised import costs. Meanwhile, markets have turned their attention to Q2 GDP data due later this week, after the economy expanded just 2.8% in Q1, marking one of the weakest performances in the region.