Debt yields go down on weak GDP data

YIELDS on government securities (GS) traded in the secondary market declined last week as below-target Philippine gross domestic product (GDP) growth last year raises the odds of further easing by the Bangko Sentral ng Pilipinas (BSP).

GS yields, which move opposite to prices, went down by 7.14 basis points (bps) on average week on week, based on PHP Bloomberg Valuation Service Reference Rates data as of Jan. 30 published on the Philippine Dealing System’s website.

At the short end of the curve, yields on the 91-, 182-, and 364-day Treasury bills (T-bills) dropped by 8.38 bps, 6.34 bps and 5 bps week on week to 4.6826%, 4.7725% and 4.8412%, respectively.

Similarly, at the belly, rates fell across all tenors. Yields on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) went down by 11.04 bps (to 5.1883%), 11.78 bps (5.3796%), 12.06 bps (5.5283%), 11.05 bps (5.6551%), and 8.19 bps (5.8549%), respectively.

At the long end, yields ended mixed. The rates of the 20- and 25-year debt papers went up by 1.31 bps (to 6.5127%) and 1.61 bps (6.5117%), respectively, while the 10-year bond went down by 7.67 bps to fetch 5.9868%.

GS volume traded on Friday reached P118.3 billion, higher than the P102.98 billion recorded a week earlier.

Yields declined almost across the board as weaker-than-expected Philippine GDP growth bolstered expectations of a BSP rate cut this month, a bond trader said in an e-mail.

“Local bond movements were mainly driven by the weaker GDP print, which signaled a sharper loss of growth momentum than expected. Markets took this as increasing the likelihood that the BSP may need to provide policy support sooner, leading to a rally in bonds, with yields declining and the front end outperforming,” Lodevico M. Ulpo, Jr., vice-president and head of Fixed Income Strategies at ATRAM Trust Corp., said in an e-mail.

“The weak growth data has shifted market focus toward downside economic risks, reinforcing expectations that domestic monetary policy could become more supportive. This creates a continued downward bias in local rates, especially for shorter tenors that are more sensitive to policy expectations.”

Philippine GDP expanded by 3% year on year in the fourth quarter, slowing from 5.3% in the same quarter in 2024 and the revised 3.9% print in the third quarter of 2025.

In 2025, the economy grew by 4.4%, much weaker than the 5.7% print in 2024. This was the weakest pace in five years or when GDP contracted by 9.5% in 2020. Excluding the pandemic, it was the slowest growth since the 3.9% expansion in 2011.

This was also below the government’s 5.5%-6.5% target and was weaker than market expectations, as a BusinessWorld poll yielded a median estimate of 4.2% for the October-to-December period and 4.8% for 2025.

Analysts said the disappointing GDP outturn gives the BSP room to lower rates further to help prop up domestic demand to spur economic recovery.

BSP Governor Eli M. Remolona, Jr. said before the GDP data release that the Monetary Board would consider the economy’s performance when they meet to review their policy settings on Feb. 19, but a weak growth print wouldn’t automatically mean further easing.

The central bank has cut benchmark borrowing costs by a cumulative 200 bps since it began its easing cycle in August 2024, with the policy rate now at 4.5%.

Mr. Ulpo added that the US Federal Reserve’s decision to pause its own easing cycle last week and “still firm tone” partially offset the yield rally, particularly at the long end.

“However, the Fed’s cautious stance suggests that global easing may be gradual, which could temper the pace of yield declines locally. Longer-dated bonds may remain more influenced by global rate movements than domestic factors,” he said.

Last week, the Fed held rates steady after lowering its benchmark rate to 3.5%-3.75% last year, Reuters reported. Interest rate futures markets stuck with anticipating two rate cuts in 2026, with the likely next reduction in June, after the new chair takes over.

For this week, the market’s focus will be on the release of January Philippine inflation data on Thursday (Feb. 5), as this could affect the BSP’s policy decision this month, the bond trader said.

“Philippine inflation remains key, as it determines how much room the BSP has to ease. A stable inflation backdrop would reinforce the growth-driven case for lower yields,” Mr. Ulpo added.

He said GS yields could also be affected by this week’s T-bond offering. On Tuesday, the Treasury will auction off P30 billion in reissued seven-year bonds with a remaining life of four years and 11 months.

“Attention will be on the five-year bond auction, which will test demand in the belly of the curve and could influence near-term yield movements depending on the strength of participation.” — Abigail Marie P. Yraola