Government securities (GS) traded in the secondary market posted mixed yields last week as investors priced in the Bangko Sentral ng Pilipinas' (BSP) third consecutive rate hike and its latest policy signals.

GS yields, which move inversely to prices, slipped by an average of 1.31 basis points (bps) last week, according to the PHP Bloomberg Valuation Reference Rates published on the Philippine Dealing System's website on Friday.

Short-end rates closed higher across all tenors, with the 91-, 182-, and 364-day Treasury bills (T-bills) rising by 9.09 bps to 5.0934%, 16.6 bps to 5.4872%, and 4.24 bps to 5.7017%, respectively. The rise at the short end, set against declines further out the curve, reflects how policy tightening bites hardest on securities most sensitive to the BSP's benchmark rate, while longer-dated bonds benefited from firm investor demand at auctions.

At the belly of the curve, yields mostly declined week on week. The two-, three-, five-, and seven-year Treasury bonds (T-bonds) fell by 0.45 bp (to 6.3305%), 0.18 bp (6.6859%), 0.68 bp (7.0658%), and 3.6 bps (7.1764%), respectively. The four-year debt, however, saw its yield inch up by 0.84 bp to 6.9377%.

At the long end, all tenors finished at lower rates. Yields on the 10-, 20-, and 25-year bonds dropped by 4.75 bps (to 7.2577%), 17.73 bps (7.3277%), and 17.75 bps (7.325%).

GS trading volume reached P46.26 billion on Friday, up from the P38.93 billion recorded the previous week.

"The yield curve was driven mainly by the Bangko Sentral ng Pilipinas' (BSP) widely expected 25-bp rate hike and its message that inflation risks remain elevated," Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said in a Viber message.

"That kept short-term yields firm, while strong demand for both T-bill and T-bond auctions showed investors are still comfortable locking in current yields, helping stabilize the longer end of the curve," he said. "Higher US Treasury yields added some caution, but domestic liquidity remained supportive."

At its Aug. 27 meeting, the BSP delivered its third straight hike as volatile global oil prices, the looming "Super El Niño," and potential minimum wage increases dimmed its inflation outlook.

The Monetary Board raised its benchmark rate by 25 bps to an over one-year high of 5%, with BSP Governor Eli M. Remolona, Jr. signaling further hikes as needed to steer inflation closer to target. The BSP's official inflation target is 2–4%. The move brought cumulative increases since April to 75 bps, part of a broader tightening cycle among emerging-market central banks contending with imported price pressures and currency volatility.

The BSP lowered its 2026 inflation forecast to 6.1% from 6.4% following softer-than-expected prints in recent months. In the seven months to July, the consumer price index (CPI) averaged 5%.

The central bank now expects headline inflation to hit 5.4% next year and 3.3% in 2028, as the effects of severe El Niño conditions and anticipated wage increases are expected to push up consumer prices. These projections were raised from 4.5% and 3.1%, respectively.

Winson Phoon, associate director of fixed-income research, and Erine Yu, fixed-income research analyst at the Maybank Investment Banking Group (MBIG), said the GS market watched for "forward guidance" from the BSP last week, as the rate hike had long been priced in.

"The bond auction [last week] and Moody's rating reaffirmation helped anchor sentiment despite several key event risks during the week," MBIG said in an e-mail. "US Treasury yields remained an important external reference, although local trading was largely driven by positioning around the BSP meeting."

On Tuesday, the government borrowed P30 billion as planned through its auction of reissued seven-year bonds, with the offer more than twice oversubscribed as tenders reached P62.886 billion. The auction brought the outstanding volume of the bond series to P306.1 billion. The reissued papers, which have a remaining life of three years and one month, were awarded at an average rate of 6.825%, with accepted yields ranging from 6.8% to 6.85%. The strong bid-to-cover ratio underscored ample liquidity in the domestic financial system despite the tightening cycle, a key reason longer-dated yields were able to decline even as the BSP raised rates.

"In the week ahead, investors are likely to focus on the upcoming domestic CPI release and key US economic data for fresh direction, with bond yields expected to remain broadly rangebound in the near term. Demand should continue to be centered on the front-to-belly segment," MBIG said.

The Philippine Statistics Authority is scheduled to release August inflation data on Friday (Sept. 4).

In its month-ahead forecast released on Friday, the BSP said it expects headline inflation to settle between 5.5% and 6.5% this month.

"Going forward, I expect yields to move sideways to up as investors closely watch sticky inflation, oil prices, the peso, and global interest rates," Mr. Ravelas said. "The key theme remains the balance between strong liquidity and persistent inflation risks." — Matthew Miguel L. Castillo