Yields on Philippine government securities (GS) closed mostly lower last week, as volatile oil prices and a hawkish pause by the US Federal Reserve kept market participants in a defensive posture. GS yields serve as benchmark borrowing rates for the Philippine government and influence lending costs across the broader economy.

Debt yields, which move inversely to prices, fell by an average of 2.33 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of July 31, published on the Philippine Dealing System's website.

At the short end of the curve, the 91-day and 364-day Treasury bill (T-bill) rates declined by 3.63 bps to 5.0265% and by 2.09 bps to 5.9487%, respectively. The 182-day tenor, however, rose by 4.47 bps week on week to 5.5261%.

All belly tenors moved lower. Two-, three-, four-, five-, and seven-year Treasury bond (T-bond) rates retreated by 2.19 bps to 6.7015%, 2.26 bps to 7.0125%, 5.51 bps to 7.2088%, 7.56 bps to 7.3259%, and 11.16 bps to 7.433%, respectively.

At the long end, the 10-year bond yield slid by 17.51 bps week on week to 7.4299%. Conversely, the 20- and 25-year notes climbed by 10.6 bps to 7.5414% and by 11.21 bps to 7.5436%, respectively.

GS trading volume reached P28.46 million on Friday, up from P22.93 million the previous week.

A broad sell-off occurred early last week as rising global oil prices — driven by the Middle East conflict — pushed up US Treasury yields, a bond trader said in a phone interview. US Treasury yields act as a global reference rate, and their movements tend to ripple into emerging-market debt markets such as the Philippines, where investors demand higher premiums when US rates rise.

"The renewed tensions in the Middle East continue to resemble a prolonged boxing match — each period of calm appears to mark only the end of one round before another bout of geopolitical uncertainty begins. As both sides continue to exchange blows, global financial markets remain susceptible to recurring waves of volatility," said Melani C. Pisiao, head of the Treasury Trading Department at Bank of Makati (A Savings Bank), Inc., in a Viber message.

"GS yields continue to reflect this cautious environment. The four- to five-year segment has remained largely range-bound between 7.1% and 7.3%, while the 10-year benchmark has traded within the 7.4% to 7.76% range, underscoring investors' reluctance to take on duration amid persistent uncertainty."

Ms. Pisiao noted that rising oil prices had pushed traders into a defensive stance.

"Crude briefly revisited the $100 per barrel level last week before retreating to below $90, highlighting ongoing concerns over potential supply disruptions and inflationary pressures. The resulting volatility has reinforced risk-off sentiment among investors, though some players see this as a chance to take on higher yields for trading profit."

Oil prices rose on Friday after Iran reported that it had intercepted two vessels attempting to exit the Strait of Hormuz, raising fresh concerns over global energy supplies following a drone attack on ships at a Mediterranean Egyptian port last week, Reuters reported. The Strait of Hormuz is one of the world's most critical oil transit chokepoints, through which roughly a fifth of global oil consumption normally passes.

Iran has blocked most shipping through the Strait of Hormuz since the onset of the five-month-old conflict, while its Houthi allies in Yemen this month began threatening the Bab el-Mandeb — the strait at the opposite end of the Red Sea from the Suez Canal and another key export route for Saudi crude.

Oil prices gained more than 1% on Friday, with traders citing the Iranian reports, which followed a similar, uncorroborated report earlier in the week. Benchmark Brent crude futures were on track to rise 23% in July, and economists and analysts polled by Reuters expect prices to climb further this year.

There were no reports of new US attacks on Iran overnight between Thursday and Friday, following a sharp escalation earlier in the week that included joint US-Saudi strikes on Iranian-allied forces in Iraq.

US President Donald J. Trump said late on Saturday that he would hold off on a fresh attack on Iran as long as a deal could be reached quickly to halt Iran's nuclear ambitions and reopen the Strait of Hormuz.

Both analysts cited the Federal Reserve's "hawkish" pause midweek as an additional factor influencing domestic yield movements.

Better-than-expected US economic data also spurred a rally in US Treasuries, driving renewed foreign buying interest, the bond trader added.

On Friday, longer-dated US Treasury yields pushed to new multi-year highs after several Federal Reserve officials argued that further interest rate hikes are necessary to combat inflation, Reuters reported.

Three Fed policymakers who had dissented in favor of a rate hike at last week's meeting publicly made their case on Friday for higher rates. The Fed kept rates unchanged — a widely expected outcome consistent with market pricing, which had assigned roughly a one-in-three probability of a hike.

Dallas Federal Reserve President Lorie Logan said on Friday that without "modest action in the near term," the US central bank would be unable to return inflation to its 2% target, given a strengthening labor market and upside risks to price pressures. Her remarks echoed similar comments from Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari.

The yield on the benchmark US 10-year note rose 6.35 basis points to 4.727%, its highest level since January 2025. The 30-year bond yield gained 5.14 basis points to 5.2584%, the highest since mid-2007.

Traders are now pricing in a 69% probability of a rate increase at the Fed's September meeting. Higher US rates typically widen the yield premium investors demand from emerging-market sovereigns, which can push local-currency bond yields higher in countries like the Philippines.

Domestically, proposed tax relief measures also influenced market sentiment due to their potential inflationary and fiscal implications.

Finance Secretary Frederick D. Go said on Wednesday that raising the annual income tax exemption threshold to P350,000 from P250,000 would reduce revenues by approximately P60 billion per year, while exempting small businesses from the minimum corporate income tax would cost an additional P6 billion.

Looking ahead to this week, Ms. Pisiao said Middle East developments and their effect on energy costs will continue to drive GS yield movements.

The bond trader noted that the market will also be watching this week's T-bond auction, particularly in light of potential changes to the government's bond pricing mechanism aimed at aligning with global standards, as JPMorgan Chase & Co. prepares to add Philippine local-currency debt to its emerging-market bond index early next year. Inclusion in major bond indices typically attracts passive fund inflows as index-tracking portfolios adjust their allocations, broadening the investor base for Philippine debt.

On Tuesday, the Treasury will auction P30 billion in reissued 20-year bonds with a remaining life of four years and 11 months.

— Pierce Oel A. Montalvo with Reuters