FX.co ★ Philippines 10Y Bond Yield Hits 8-Year High

The yield on the Philippines’ 10-year government bond climbed toward 8%, its highest level since late October 2018, as faster inflation and weaker demand at government debt auctions pressured the bond market. Headline inflation accelerated to 7.2% in September from 6.1% in August, surpassing the consensus forecast of 6.6% and matching April’s three-year high. This has strengthened expectations of another interest rate hike by the Bangko Sentral ng Pilipinas, following three increases earlier this year. At the same time, the peso has depreciated by about 6% year-to-date, heightening the risk of imported inflation. Persistently elevated oil and food prices, coupled with potential supply shocks from an El Niño-induced drought, may prolong inflationary pressures and support a more extended period of tight monetary policy. On the demand side, appetite for government securities has softened, with the bid-to-cover ratio at a five-year bond auction in September dropping to 1.22, the lowest level for that tenor since 2013.