Yields on government securities (GS) traded in the secondary market ended mostly higher last week, as investors turned cautious ahead of a jumbo bond offering expected to boost supply, offsetting support from a slightly slower August inflation print.

GS yields, which move opposite to prices, rose by an average of 3.91 basis points (bps) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Sept. 4 published on the Philippine Dealing System's website.

Short-End Mixed

At the short end of the curve, yields were mixed. Rates on the 91- and 364-day Treasury bills (T-bills) rose by 2.1 bps to 5.1144% and 4.07 bps to 5.7424%, respectively, while the 182-day tenor inched down by 0.69 bp to 5.4803%.

Yields at the belly of the curve rose across the board. Rates on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) climbed by 9.43 bps (to 6.4248%), 7.19 bps (6.7578%), 4.94 bps (6.9871%), 6.05 bps (7.1263%), and 7.38 bps (7.2502%), respectively.

At the long end, the 10-year T-bond rose by 3.08 bps to yield 7.2885%, while the 20- and 25-year debt slipped by 0.45 bp and 0.06 bp to fetch 7.3232% and 7.3244%, respectively.

GS volume traded reached P20.84 billion on Friday, down from the P46.26 billion logged a week earlier.

Supply Worries Drive Yields Higher

Analysts pointed to supply concerns as the primary driver behind the upward movement in yields, particularly across the belly of the curve. When the government sells a large volume of new debt, investors typically demand higher yields to absorb the additional paper, pushing market rates up.

"The increase in GS yields this week was driven mainly by investor caution ahead of the government's anticipated jumbo bond issuance, which weighed on demand," Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said in a Viber message.

"It is really more of inflationary pressure and government borrowing that is putting upward pressure on yields," a bond trader said.

Under the Bureau of the Treasury's (BTr) quarterly borrowing plan, the government looks to raise P330 billion from the domestic market this month — P200 billion via T-bills and P130 billion through T-bonds.

This includes an offering of new five-year fixed-rate Treasury notes (FXTN) scheduled for Sept. 22. The BTr last offered FXTNs in February.

The Treasury began offering FXTNs last year to establish new benchmarks and enhance market liquidity. These offerings are held under an issuance format targeting institutional investors such as corporates, cooperatives, trust funds, retirement funds, and provident funds.

Bloomberg reported last week that the BTr is reconsidering its FXTN offer this month amid volatile global bond markets, as a re-escalation of the Middle East conflict has stoked inflation concerns anew. The bond trader said this helped GS yields drop from their intraweek highs.

Meanwhile, Mr. Asuncion said the August Philippine inflation print "supported the view that domestic price pressures may be stabilizing, which helped sustain demand for government securities," but this was "not enough to offset supply concerns."

Inflation Context

Data from the Philippine Statistics Authority showed headline inflation, as measured by the consumer price index, eased to 6.1% in August from 6.2% in July, though it accelerated from 1.5% a year earlier. The August figure was the slowest headline clip in five months, or since the 4.1% recorded in March.

The print fell within the central bank's 5.5%-6.5% forecast for the month and was just slightly faster than the 6% median estimate of 20 analysts polled by BusinessWorld. However, August marked the sixth straight month that the headline print settled above the Bangko Sentral ng Pilipinas' (BSP) 3% target.

The bond trader said the market had yet to show a "real reaction" to the latest domestic inflation data, as most players stayed on the sidelines before the weekend. The market instead reacted to US-Iran developments for most of the week, the trader added.

Outlook

Looking ahead, the trader said the slight decline in rates as the government moved to ease bond supply concerns may be short-lived.

"Although the initial reaction was lower yields, I think this will just put more pressure on the short end to belly of the curve moving forward, knowing the government needs to borrow to fund the 2027 budget," the trader said.

Mr. Asuncion said that moving forward, "market participants will remain focused on the inflation trajectory, BSP policy signals, and key developments in global interest rates."

— Heather Caitlin P. Mañago