FX.co ★ Philippines 10-Year Bond Yield Rises

The yield on the Philippines’s 10-year government bond climbed to around 7.2% in mid-May, nearing its highest level in more than three and a half years, as peso-denominated bonds continued to weaken on expectations of substantial interest rate hikes. The move came after headline inflation surged to a three-year high of 7.2% in April, far exceeding the central bank’s 5.6%–6.4% forecast range and underscoring rapidly intensifying price pressures fueled by higher energy costs and the country’s heavy dependence on Middle Eastern oil imports. In response, markets have increased their expectations for a 50 bps rate hike at the June 18 policy meeting, triggering a broader selloff in sovereign bonds. Since the onset of the Iran war, Philippine government debt has delivered losses of more than 10% for dollar-based investors, making it the worst performer in emerging Asia, according to a Bloomberg index. Weak demand at recent government bond auctions has further highlighted the deterioration in investor appetite for Philippine sovereign debt.