Debt yields mixed amid global volatility

YIELDS on government securities (GS) ended mixed last week amid global market volatility and as players await key Philippine economic data for clues on the Bangko Sentral ng Pilipinas’ (BSP) policy direction.

GS yields, which move opposite to prices, inched up by an average of 0.42 basis point (bp) week on week at the secondary market, based on the PHP Bloomberg Valuation Service Reference Rates as of Jan. 23 published on the Philippine Dealing System’s website.

At the short end, rates of Treasury bills (T-bills) went down, with yields on the 91-, 182-, and 364-day tenors dropping by 3.11 bps (to 4.7664%), 4.52 bps (4.8359%), and 5.16 bps (4.8912%), respectively.

Meanwhile, all tenors at the belly fetched higher yields. The two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) climbed by 0.33 bp (to 5.2987%), 2.65 bps (5.4974%), 3 bps (5.6489%), 3.22 bps (5.7656%), and 4.45 bps (5.9368%), respectively.

The long end of the curve also went up, with yields on the 10-, 20-, and 25-year notes rising by 1.52 bps (to 6.0635%), 1.21 bps (6.4996%), and 1.04 bps (6.4956%), respectively.

GS volume traded increased to P102.98 billion on Friday from P71.97 billion a week prior.

Bond yields were mostly mixed as global markets were volatile due to trade war concerns amid US Donald J. Trump’s tariff threats, the first bond trader said.

At the short end, rates went down on strong demand for shorter tenors amid strong market liquidity and lingering global uncertainties, but longer-dated bonds fetched higher yields amid market jitters, the trader said, adding that the peso’s weakness and its potential impact on the BSP’s easing path also added to concerns.

“Recently, short-term yields have stayed low as we anticipate that the BSP will continue its easing cycle to support a softening economy. There is limited room for yields to compress much further because the BSP has signaled that its easing cycle is nearing an end. While a cut is expected, any further downward movement in yields is being checked by rising inflation forecasts for 2026,” the second bond trader said.

“Despite the massive oversubscription in recent auctions, the downside for T-bill yields is becoming increasingly restricted. The overwhelming demand shows that investors are locking in the current rates before they drop further. A weak peso, which recently hit record lows of P59.46, and global geopolitical tensions are making it difficult for yields to stay at these floor levels. If the peso continues to slide, the BSP may be forced to pause rate cuts to protect the currency, which would cause short-term yields to bottom out or even bounce back slightly.”

Markets hit a rocky patch last week due to the fallout from Mr. Trump’s aggressive stance to acquire Greenland, which threatened a new trade war with Europe, Reuters reported.

Markets initially reeled, with stocks, bond prices and the US dollar all swooning, an unusual occurrence. But major equity indexes rebounded later in the week after Mr. Trump backed off tariff threats, suggesting a deal was in sight for Greenland.

Meanwhile, on Friday, BSP Governor Eli M. Remolona, Jr. said that another cut remains uncertain, adding that price stability is their primary concern.

He said that while they will consider the latest gross domestic product (GDP) data when the Monetary Board meets to review their policy stance on Feb. 19, weaker-than-expected growth wouldn’t automatically warrant further easing.

The BSP on Dec. 11 delivered a fifth straight 25-bp reduction in benchmark interest rates, bringing the policy rate to an over three-year low of 4.5%. It has lowered borrowing costs by a total of 200 bps since its rate cut cycle began in August 2024.

Mr. Remolona earlier said they could deliver one last cut to help support domestic demand and spur economic recovery.

Governance concerns due to a corruption scandal involving state infrastructure projects have dragged public and private investments, causing Philippine GDP growth to slump to a four-year low of 4% in the third quarter of 2025.

For this week, the first trader said the market will monitor the fourth-quarter and full-year Philippine GDP data to be released on Thursday (Jan. 29), BSP policy signals, and global geopolitical developments.

The Philippine economy likely expanded by 4.2% in the fourth quarter, based on a BusinessWorld poll of 18 economists and analysts. This would be faster than the 4% growth in the third quarter, but slower than 5.3% expansion in the same period in 2024.

This would put full-year growth at 4.8%, below the government’s 5.5%-6.5% target. This would also be slower than the 5.7% expansion in 2024 and the weakest since the 9.5% contraction posted in 2020.

“Market players are now observing the trend that will dictate the direction of the yield curve in the coming weeks. The performance of the Philippine peso, which might breach the P59.50 level, could signal a shift in monetary policy. Also, the market is watching the US Treasury yields and Federal Reserve signals, which often set the ceiling for local interest rates,” the second trader added.

Investors widely expect the Fed to hold rates steady when it gives its monetary policy decision on Wednesday at the end of its two-day meeting, Reuters reported. Fed funds futures are pricing in at least one more such cut this year, according to LSEG data. — P.O.A. Montalvo with Reuters