Debt yields end mixed on BSP bets after CPI data

By Heather Caitlin P. Mañago, Researcher

YIELDS on government securities (GS) traded in the secondary market ended mixed last week as softer-than-expected May inflation raised hopes that the Bangko Sentral ng Pilipinas (BSP) could deliver a smaller rate increase this month.

GS yields, which move opposite to prices, inched up by an average of 0.28 basis point (bp) week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of June 5 published on the Philippine Dealing System’s website.

At the short end of the curve, rates declined across the board. Yields on the 91-, 182-, and 364-day Treasury bills (T-bills) fell by 3.31 bps, 3.96 bps, and 4.23 bps week on week to 4.9562%, 5.3645%, and 6.0644%, respectively.

Meanwhile, yields at the belly and long end of the curve rose week on week. The rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) climbed by 1.38 bps (to 6.8175%), 0.27 bp (7.0692%), 1.81 bps (7.246%), 3.37 bps (7.3714%), and 1.45 bps (7.4853%), respectively.

The 10-, 20-, and 25-year tenors went up by 0.85 bp, 1.36 bps, and 4.09 bps to yield 7.5293%, 7.5965%, and 7.5957%, respectively.

GS volume traded reached P21.7 billion on Friday, lower than the P40.34 billion logged a week earlier.

“The focus this week was anticipation for the CPI (consumer price index) data,” a bond trader said in a Viber message.

“Right now, market is taking it positively, with most series lower.”

Headline inflation settled at 6.8% in May, easing from 7.2% in April but higher than the 1.3% in the same month last year, the Philippine Statistics Authority reported on Friday.

It was the first month-on-month easing in the CPI since November 2025 and was the slowest pace in two months or since the 4.1% in March.

The print was also lower than the 7.9% median estimate in a BusinessWorld poll of 16 economists and the BSP’s 7.1%-7.9% forecast range.

Still, May marked the third straight month that inflation exceeded the central bank’s 2%-4% annual target, and brought the five-month average to 4.5%.

Domini S. Velasquez, chief economist at China Banking Corp., said yields initially rallied by four to 13 bps after the inflation release as investors priced out the possibility of a more aggressive BSP tightening cycle.

“The rally stalled later in the session, as the BTr (Bureau of the Treasury) scheduled a sizeable P50-65 billion in their auction next week,” she said on Friday.

Lodevico M. Ulpo, Jr., vice-president and head of fixed-income strategies at ATRAM Trust Corp., said short-term yields fell on hopes of a “potentially less aggressive BSP policy path,” while longer-dated tenors remained under pressure.

“Yields in the belly and long end of the curve moved higher as investors continued to contend with heavy government bond supply and ongoing borrowing requirements, resulting in higher term premiums despite the favorable inflation outcome,” Mr. Ulpo said.

He added that investors are looking for signs that inflation is peaking.

“Externally, US Treasury yields, Federal Reserve expectations, and global risk sentiment influenced trading. Markets continued to watch US economic data for clues on future Fed policy,” he said. “Meanwhile, global inflation trends, energy prices, and Middle East tensions, particularly involving the US and Iran, remained important due to their impact on inflation expectations.”

For this week, the analysts said yields may continue to move sideways as the market turns cautious in anticipation of the BSP’s June 18 policy meeting.

“Next week’s direction will depend largely on how investors interpret the latest inflation data and its implications for BSP policy,” Mr. Ulpo said. “The softer-than-expected May inflation print could support further buying and lower yields as investors reassess the need for additional BSP tightening. Improved valuations following the recent rise in yields may also attract long-term investors.”

“Looking ahead to next week, GS yields are expected to trade broadly flat, with the post-inflation rally constrained by additional supply from the upcoming bond auction,” Ms. Velasquez added.

The bond trader said rates will likely be affected by the BTr’s awarding behavior at the upcoming GS auctions and any policy signals from the BSP, with some market participants still wary of a potential 50-bp increase.

The analysts added that the market will continue to monitor the peace negotiations between the US and Iran, as well as upcoming domestic and US economic data.