Philippine bond yields jump 10 bps as peso hits record P64.17 a dollar

Philippine government bond yields climbed an average of 10.02 basis points (bps) week on week as the peso sank to a record P64.17 a dollar and investors braced for another hot inflation print, according to PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System's website.

The move was broad. The 91-, 182- and 364-day Treasury bills rose 5.99 bps to 5.8137%, 15.05 bps to 6.3% and 13.86 bps to 6.5727%. The belly of the curve took the heaviest selling: the two-, three-, four-, five- and seven-year bonds added 13.96 bps to 7.3282%, 13.13 bps to 7.6238%, 12.5 bps to 7.8371%, 12.72 bps to 7.9768% and 15.42 bps to 8.1332%. The 10-year rate rose 7.97 bps to 8.1337%, while the 20- and 25-year tenors slipped fractionally. Volume fell to P14.17 billion from P16.24 billion.

Lodevico M. Ulpo, Jr., vice-president and head of fixed income strategies at ATRAM Trust Corp., said the curve bear-steepened on persistent inflation concerns, currency weakness and expectations of a higher-for-longer global rates environment. He said the Bangko Sentral ng Pilipinas' hawkish tone after its 50-bp hike on Oct. 22 triggered a sell-off, sharpest in the belly, though opportunistic buying later pared some losses. Winson Phoon and Erine Yu of Maybank Investment Banking Group said the rise reflected uncertainty over the BSP's terminal rate after the surprise hike, with the weaker peso and firm crude prices keeping the outlook unclear.

The peso's slide put upward pressure on yields through its expected effect on inflation, a bond trader said, and the currency only rebounded after President Ferdinand R. Marcos, Jr. said the government would do all it can to defend it, finishing the week at P63.74. The same trader said the Bureau of the Treasury's partial awards showed the government capping the rise in yields, while Maybank noted the three-year average awarded yield of 7.74% was the highest for that tenor since 2006.

The BSP said on Friday it expects October headline inflation of 7.1% to 8.1%, which would exceed the 7.2% peak seen in September and April and mark the fastest pace since 8.6% in February 2023, keeping inflation above the 3% target for an eighth straight month. The Philippine Statistics Authority releases the data on Nov. 5, and Maybank said further peso weakness or an inflation surprise could keep yields climbing while signs of easing prices would support the bond market.