Debt yields decline on within-target inflation

YIELDS on government securities (GS) traded at the secondary market closed mostly lower last week as players continued to bet on a rate cut by the Bangko Sentral ng Pilipinas (BSP) this month, with inflation staying within target in January despite a slight uptick.

GS yields, which move opposite to prices, declined by an average of 4.32 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Feb. 6 published on the Philippine Dealing System’s website.

At the short end, yields ended lower across all tenors, with the 91-, 182-, and 364-day Treasury bills (T-bills) declining by 11.21 bps, 8.98 bps, and 10.38 bps week on week to fetch 4.5705%, 4.6827%, and 4.7374%, respectively.

At the belly, rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) likewise dropped by 2.7 bps (to 5.1613%), 3.77 bps (5.3419%), 4.13 bps (5.487%), 4.22 bps (5.6129%), and 5.17 bps (5.8032%), respectively.

Meanwhile, the long end was mixed, as yields on the 20- and 25-year debt inched up by 2.83 bps to 6.541% and 2.86 bps to 6.5403%, respectively, while the rate of the 10-year tenor dropped by 2.7 bps to 5.9598%.

GS volume traded decreased to P46.61 billion on Friday from P118.3 billion a week prior.

“Philippine GS yields moved lower week on week as January inflation, while slightly higher at 2%, remained well within the BSP’s target and did not materially change the policy outlook,” the first bond trader said.

“Combined with a softer growth backdrop, this kept demand strong, particularly at the short to belly of the curve, as investors continued to look for safe-haven placements.”

The second bond trader said the faster-than-expected inflation print caused yields to tick higher last week, but these increases weren’t enough to fully reverse the gains from the market’s rally following the earlier release of weak gross domestic product (GDP) growth data.

Philippine headline inflation accelerated to 2% in January from 1.8% in December, but slowed from the 2.9% in the same month last year. This was the fastest in 11 months or since 2.1% in February 2025.

It was also higher than the 1.8% median forecast from a BusinessWorld poll of 18 economists, but was within the BSP’s 1.4%-2.2% estimate for the month.

The central bank said in a statement that inflation remains benign and reiterated that their monetary easing cycle could end soon, with further cuts to be limited and data-dependent.

BSP Governor Eli M. Remolona, Jr. earlier said a cut is possible at the Monetary Board’s Feb. 19 meeting if they see the need to support domestic demand.

Philippine GDP growth slowed to a five-year low of 4.4% last year, missing the government’s 5.5%-6.5% target amid the fallout from a corruption scandal that affected both public and private spending.

The Monetary Board has reduced benchmark rates by 200 bps since August 2024, bringing the policy rate to 4.5%.

“Markets were also defensive ahead of the jumbo 10-year issuance on Feb. 18. Pricing the new 10-year bond would be key to where the yield curve will shift in the coming weeks,” the second trader said.

The Bureau of the Treasury announced on Friday that it will auction off new 10-year benchmark bonds, through which it wants to raise at least P30 billion. The offer also has an exchange offer component.

A rate-setting auction is scheduled for Feb. 18, with the offer period set to run until Feb. 20, unless adjusted by the Treasury. The bonds will be issued on Feb. 23.

For this week, the second trader said the yield curve will remain well supported, especially at the belly, amid strong liquidity.

“Markets will monitor data outside of the US like the US payroll numbers to be released on Feb. 11. Given no significant data releases locally, local bonds would likely trade in sympathy to US bond yield movements.”

“Looking ahead, yields are expected to stay supported, with market focus on BSP guidance, and global developments, including US rate expectations, while the announced 10-year supply is largely seen as already priced in,” the first trader added. — Heather Caitlin P. Mañago