By Heather Caitlin P. Mañago, Researcher

Yields on Philippine government securities (GS) traded in the secondary market ended mostly higher last week, as investors priced in increased inflation risks from rising global oil prices and the peso’s fall to a new record low.

GS yields, which move inversely to prices, rose by an average of 19.98 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of July 24 published on the Philippine Dealing System’s website.

At the short end of the yield curve, rates were mixed. The yields on the 182-day and 364-day Treasury bills (T-bills) fell by 5.1 bps and 1.15 bps to 5.4814% and 5.9696%, respectively. The 91-day tenor, however, edged up by 0.27 bp to 5.0628%.

Yields at the belly and the long end of the curve rose across the board from the previous week. Rates on the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) increased by 16.87 bps to 6.7234%, 21.52 bps to 7.0351%, 24.99 bps to 7.2639%, 25.55 bps to 7.4015%, and 24.38 bps to 7.5446%, respectively.

The 10-, 20-, and 25-year tenors also climbed, gaining 32.24 bps, 40.29 bps, and 39.92 bps to end at 7.6050%, 7.4354%, and 7.4315%, respectively.

Total GS volume traded reached P22.93 billion on Friday, slightly below the P23.49 billion recorded a week earlier.

“The market was driven by higher inflation expectations as global oil prices jumped following the escalation in US-Iran tensions,” the first bond trader said in a Viber message.

A second trader said the peso’s depreciation and elevated crude oil prices brought renewed attention to domestic inflation risks. A weaker peso can raise the local-currency cost of imported fuel and other goods, while higher oil prices feed into transport, electricity, and production costs watched by bond investors.

The trader added that military skirmishes in the Strait of Hormuz and the closure of the Bab-el-Mandeb Strait by Houthi rebels have “effectively choked the passage of oil exports from the Arabian Peninsula.”

The Philippine peso closed at a fresh all-time low of P61.847 per dollar on Friday, as escalating conflict in the Middle East pushed Brent crude oil prices back above $100 a barrel.

During intraday trading, the local currency weakened to as low as P61.85 against the greenback, exceeding the previous record low of P61.75 first reached on April 30.

The Bangko Sentral ng Pilipinas (BSP) expects headline inflation to remain above its 3% point target through 2028. Its forecasts stand at 6.4% for 2026, 4.5% for 2027, and 3.1% for 2028.

Headline inflation has been above the BSP’s 2%-4% tolerance band since March, amid the energy price shock caused by the Middle East conflict.

In June, inflation eased to 6.4% from 6.8% in May after oil prices declined following an interim peace agreement between the United States and Iran. For the first half of the year, headline inflation averaged 4.8%.

Core inflation, however, quickened for a sixth consecutive month to 4.4% in June, marking its fastest pace in nearly three years. Persistent core price pressures matter for the GS market because they can influence expectations for monetary policy and the compensation investors demand to hold longer-dated debt.

This week, both traders said the market will look to inflation-related data and geopolitical developments for further direction.

“[This] week’s report on the Fed’s inflation gauge… will be monitored whether this report will be sufficient to allow the US central bank to consider rate hikes a bit later this year,” the second trader said.

The trader said a possible diplomatic breakthrough in the Middle East could help ease supply concerns and temper oil price pressures.

The first trader also said the Bureau of the Treasury’s higher borrowing program for this quarter could put upward pressure on yields, as increased supply would require stronger investor demand.