The Philippine government made a partial award of the short-term debt it offered on Tuesday, as yields climbed amid a global bond sell-off triggered by renewed exchanges of attacks between the United States and Iran, which reignited inflation fears. Higher auction yields translate directly into costlier borrowing for the government, whose debt service burden rises as it refinances maturing obligations at steeper rates.

The Bureau of the Treasury (BTr) raised a combined P49.582 billion from its offering of cash management bills (CMBs) and Treasury bills (T-bills), falling short of the P55-billion target even though total tenders reached P79.954 billion. The result was weaker than the previous week, when bids of P122.542 billion chased the P60 billion auctioned off.

The BTr said it partially awarded both the 35-day CMBs and the 91-day T-bills in order to cap the rise in yields. Partial awards are a standard tool the Treasury uses when it judges that fully accepting bids would push average rates — and by extension its borrowing costs — too high.

Broken down, the Treasury borrowed only P8.252 billion via the 35-day cash management bills, below the P10-billion program, even as demand for the offering reached P10.852 billion. The one-month bill fetched an average rate of 5.036%, surging by 21.3 basis points (bps) from the 4.823% recorded last week. Bid yields ranged from 4.9% to 5.05%.

Meanwhile, the government raised a combined P41.33 billion from the T-bills, short of the P45-billion target despite tenders reaching P65.102 billion.

For the 91-day T-bills, the Treasury borrowed just P16.33 billion, below the P20-billion program even as bids for the tenor reached P21.803 billion. The three-month paper fetched an average rate of 5.138%, up 8.7 bps from 5.051% last week. Accepted tenders carried yields of 5.04% to 5.2%.

For the 182-day papers, the government raised P15 billion as planned, with tenders hitting P27.749 billion. The average yield on the six-month T-bill stood at 5.517%, rising 8.4 bps from the previous 5.433%. Bid rates awarded ranged from 5.45% to 5.585%.

Finally, the BTr sold its full P10-billion target in 364-day securities as demand for the tenor totaled P15.55 billion. The one-year paper fetched an average rate of 5.717%, jumping 8.7 bps from 5.64% last week. Accepted yields ranged from 5.65% to 5.75%.

At the secondary market before Monday's auction, the 35-, 91-, 182-, and 364-day bills were quoted at 4.8853%, 5.0934%, 5.4872%, and 5.7017%, respectively, based on PHP Bloomberg Valuation Service Reference Rates data from the Treasury.

"The upward movement in yields is likely due to the opposing sides clashing again in the Middle East conflict this weekend. The lack of demand was also due to the upward trajectory of yields," a trader said in a text message.

Selling drove global bond yields to major new highs on Tuesday as renewed fighting in the Middle East lifted oil prices above $90 a barrel, Reuters reported. Japan's 10-year benchmark hit 3% for the first time in a generation. The 10-year US Treasury yield, a benchmark for prices across asset classes, reached its highest level since early 2025 at 4.78%, while futures for French and German debt extended a sell-off that had earlier driven yields to 15-year highs.

Higher oil prices and rising US-Iran tensions are stoking worries about inflation, which is negative for bonds, just as US Federal Reserve Chair Kevin Warsh has reset expectations for the policy outlook. At the same time, skyrocketing sovereign borrowing has investors starting to demand higher premiums for lending. The Philippines, which imports nearly all of its crude oil requirements, is particularly exposed to swings in global oil prices, which feed through to domestic fuel, transport and power costs.

Brent crude futures topped $91 a barrel in Asia trade, while Europe's benchmark gas price closed at a more than 3-1/2-year high on Monday. The conflict in the Middle East has left the energy and inflation outlook precarious, with traders bracing for short-term rate rises.

US President Donald J. Trump on Monday threatened further strikes against Iran, following the first exchange of direct attacks in a month and raising tensions in a conflict that had recently shifted into an economic standoff. Iran launched missiles overnight at two US air bases in Jordan in response to a US attack on Iran's Larak Island, where Washington said it had struck Iranian launchers firing mines into the Strait of Hormuz.

The rise in short-term debt yields was also driven by the Bangko Sentral ng Pilipinas' (BSP) hawkish rate hike last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

On Aug. 17, the Monetary Board increased benchmark rates by 25 bps for a third consecutive meeting, in a preemptive move to combat broadening price pressures stemming from volatile global oil prices, the looming "Super El Niño," and potential minimum wage increases. This brought cumulative increases since April to 75 bps. When the central bank tightens, short-term debt yields typically follow, as investors demand returns in line with the elevated policy rate.

BSP Governor Eli M. Remolona, Jr. said policymakers hope there will be no further need for tightening, but nonetheless left the door open to more hikes as necessary to steer inflation back to the 3% target.

In the seven months to July, headline inflation averaged 5%. The BSP sees the consumer price index averaging 6.1% this year, well above its 2%-4% tolerance band. The Monetary Board's final two policy reviews this year are scheduled for Oct. 22 and Dec. 17 — dates bond traders will be watching alongside upcoming T-bill and T-bond auctions for signals on where domestic yields head from here.

On Wednesday, the government is looking to raise P30 billion from reissued 20-year Treasury bonds (T-bonds) with a remaining life of four years and 10 months. The Treasury plans to raise P330 billion from the domestic market this month — P200 billion via T-bills and P130 billion through T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.659 trillion, or 5.4% of gross domestic product, this year. — Aaron Michael C. Sy with Reuters