Gov’t debt yields rise on oil surge, ME war

YIELDS on Philippine government securities rose in the secondary market last week as higher global oil prices and escalating war in the Middle East dampened investor sentiment and fueled concerns about inflation.

Analysts said the jump in crude prices, which briefly pushed benchmarks above $100 per barrel, raised worries about rising energy costs and their potential impact on domestic price pressures. The developments prompted investors to demand higher yields on government debt.

Government securities yields, which move opposite to prices, climbed across most tenors as traders reduced exposure to longer-duration bonds.

Lodevico M. Ulpo, Jr., vice-president and head of fixed income strategies at ATRAM Trust Corp., said geopolitical headlines from the Middle East drove market sentiment for much of the week.

Headlines from the Middle East significantly influenced market sentiment as missile attacks from Iran pushed oil prices higher, raising concerns about inflation risks, he said in a Viber message.

The environment prompted investors to trim holdings of longer-term debt securities, while some offshore accounts also contributed to selling pressure.

A bond trader said the rise in local yields reflected elevated global oil prices and the risk that higher fuel costs could feed into domestic inflation.

The trader added that recent adjustments in local fuel prices have also reinforced concerns about price pressures, raising the possibility that the central bank may need to keep monetary policy tight to prevent inflation from exceeding its target.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the climb in yields followed the spike in global crude prices, which have reached some of their highest levels in more than three years.

Higher energy costs could slow economic growth and push inflation higher, he said.

In the primary market, demand for government securities also showed signs of caution.

The Bureau of the Treasury partially awarded its latest offering of seven-year Treasury bonds after bids came in below expectations. The government raised less than the programmed amount as investors sought higher yields.

Mr. Ulpo said the softer demand reflected investors’ cautious stance toward longer-duration bonds amid geopolitical risks and volatile oil prices.

“The softer demand reflects the market’s cautious stance toward duration amid elevated geopolitical risks and rising oil prices,” he said.

Developments overseas also influenced market expectations. While the US signaled that tensions with Iran could ease sooner than expected, concerns about disruptions to oil shipments through the Strait of Hormuz have persisted, keeping energy markets on edge.

Meanwhile, recent US inflation data came largely in line with expectations, reinforcing views that the US Federal Reserve might keep interest rates steady in the near term.

Still, analysts said markets remain sensitive to geopolitical developments that could affect energy prices and global inflation trends.

For the coming week, investors are expected to watch the government’s planned offering of longer-term bonds, which could provide a clearer gauge of market appetite for duration amid continued uncertainty.

Market participants are also expected to monitor signals from the Federal Reserve and key economic data releases that could shape expectations for global interest rates. — Abigail Marie P. Yraola