PHL bond yields climb amid oil, war concerns

GOVERNMENT bond yields in the Philippines climbed last week as investors reacted to escalating tensions in the Middle East and weighed the implications of inflation data that came in slightly softer than expected.

Yields on government securities rose across the curve, reflecting weaker demand for bonds as markets reassessed inflation risks and the outlook for monetary policy. Bond yields move inversely to prices.

Short-term Treasury bill yields edged higher, whilst medium- and long-term bond rates posted steeper increases, according to data from the Bloomberg Valuation Service Reference Rates posted on the Philippine Dealing System’s website. Trading activity also eased compared with the previous week.

Market participants pointed to geopolitical risks following a sharp escalation in the conflict involving the US, Israel, and Iran. The tensions have heightened concerns over energy supply disruptions after Iran shut the Strait of Hormuz, a key shipping route for global oil and liquefied natural gas.

About a fifth of the world’s seaborne oil trade passes through the strait. Any prolonged disruption could drive energy prices higher, raising inflation risks for import-dependent economies such as the Philippines.

“The escalation of geopolitical tensions between US-Israel and Iran… fueled domestic inflationary concerns that pushed bond yields higher,” a bond trader said in an e-mailed reply to questions. “This uncertainty is pushing investors to reassess the future policy path of the Bangko Sentral ng Pilipinas.”

The conflict intensified after joint US and Israeli strikes in Iran killed several senior officials, including Iran’s Supreme Leader Ayatollah Ali Khamenei, according to international media reports. The attacks followed weeks of stalled negotiations over Tehran’s nuclear program.

Iran retaliated by launching strikes targeting US bases across several Middle Eastern countries, including Saudi Arabia, Qatar, Bahrain, the United Arab Emirates, Kuwait, Jordan and Oman. The escalation has unsettled financial markets and raised fears of broader regional instability.

For the Philippines, the developments are closely tied to inflation prospects. The country imports most of its crude oil requirements, making domestic prices sensitive to global energy movements.

Inflation rose to 2.4% in February from 2% in January, according to the Philippine Statistics Authority. It matched market expectations and remained within the central bank’s forecast.

Even so, analysts said the renewed risks to energy prices could complicate the central bank’s policy outlook.

The central bank cut its benchmark interest rate by 25 basis points last month to a more than three-year low, extending an easing cycle that began in 2024. The move brought total reductions since the start of the cycle to more than two percentage points.

Investors are now reassessing how much room the central bank has to continue easing if global energy prices climb.

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said the surge in geopolitical risk has prompted a more cautious stance in bond markets.

“Risk-off trades pushed yields higher due to the US-Iran war,” he said in a Viber message. “Rising inflation expectations are also adding to the pressure.” — Lourdes O. Pilar