YIELDS on government securities (GS) closed mostly lower last week as volatile oil prices and a hawkish US Federal Reserve pause kept the market defensive.
Debt yields, which move opposite to prices, slipped by an average of 2.33 basis points (bps) week on week, based on 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, rates of the 91- and 364-day Treasury bills (T-bills) declined by 3.63 bps to 5.0265% and 2.09 bps to 5.9487%, respectively. Meanwhile, the 182-day tenor rose by 4.47 bps week on week to yield 5.5261%.
All tenors at the belly fell, with rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) retreating by 2.19 bps (to 6.7015%), 2.26 bps (7.0125%), 5.51 bps (7.2088%), 7.56 bps (7.3259%), and 11.16 bps (7.433%).
At the long end, the 10-year bond’s yield slid by 17.51 bps week on week to 7.4299%. On the other hand, the 20- and 25-year notes climbed by 10.6 bps to 7.5414% and by 11.21 bps to 7.5436%, respectively.
GS volume traded reached P28.46 million on Friday, higher than P22.93 million in the previous week.
There was a broad sell-off early last week as higher global oil prices due to the Middle East conflict pushed up US Treasury yields, a bond trader said in a phone interview.
“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,” Melani C. Pisiao, head of the Treasury Trading Department at Bank of Makati (A Savings Bank), Inc., said 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.”
She said rising oil prices turned traders defensive.
“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 sees this as a chance to take on higher yields for trading profit.”
Oil prices rose on Friday after Iran said it had stopped two vessels seeking to exit the Strait of Hormuz, underscoring concerns over global energy supplies following a drone attack on ships in a Mediterranean Egyptian port last week, Reuters reported.
Iran has blocked most shipping through the Strait of Hormuz since the start of the five-month-old conflict while its Houthi allies in Yemen this month began threatening the Bab el-Mandeb, the strait at the other end of the Red Sea from the Suez Canal, another export route for Saudi crude.
Oil prices rose more than 1% on Friday, with traders citing the Iranian reports, which followed a similar report earlier this week that was not corroborated. Benchmark Brent crude futures were on track to rise 23% in July and economists and analysts polled by Reuters expect prices to rise further this year.
There were of new US attacks on Iran overnight between Thursday and Friday after what was a sharp escalation in its war on Iran earlier in the week, with joint US-Saudi strikes on Iranian-allied forces in Iraq.
US President Donald J. Trump said late on Saturday 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.
Meanwhile, both analysts said the Fed’s “hawkish” pause midweek also affected 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 Treasury yields pushed to new multi-year highs after several Federal Reserve officials argued that further interest rate hikes are needed to combat inflation, Reuters reported.
Three Fed policymakers who had dissented in favor of a rate hike at last week’s meeting made their case publicly on Friday for higher rates. The Fed kept rates unchanged — a widely expected outcome that aligned with market pricing, which had priced in roughly a one-in-three chance of a hike.
Dallas Federal Reserve President Lorie Logan said on Friday that without “modest action in the near term,” the US central bank will not be able to get inflation back on track to its 2% target, given a solid labor market that is strengthening and upside risks to price pressures. That echoed similar comments by Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari.
The yield on benchmark US 10-year notes rose 6.35 basis points to 4.727%, the highest since January 2025.
The 30-year bond yield rose 5.14 basis points to 5.2584%, the highest since mid-2007.
Traders are now pricing in 69% odds of a rate increase at the Fed’s September meeting.
At home, tax relief proposals also affected market sentiment due to their potential inflationary and fiscal impact.
Finance Secretary Frederick D. Go on Wednesday said raising the annual income tax exemption threshold to P350,000 from P250,000 would reduce revenues by about P60 billion a year, while exempting small businesses from the minimum corporate income tax would cost another P6 billion.
For this week, Ms. Pisiao said developments in the Middle East and their impact on energy costs will continue to drive GS yield movements.
The bond trader said the market will also monitor this week’s T-bond auction, especially amid news of potential changes to the government’s bond pricing mechanism in alignment with global standards as JPMorgan Chase & Co. is set to add the Philippines’ local-currency debt to its emerging-market bond index early next year.
On Tuesday, the Treasury will auction off P30 billion in reissued 20-year bonds with a remaining life of four years and 11 months. —Pierce Oel A. MontalvowithReuters
