Bond yields rising on inflation jitters

Investor concerns over high inflation and slower economic growth have jacked up yields on peso-denominated securities in recent months, the Asian Development Bank said Friday.

In its Asia Bond Monitor report for September, the Manila-based multilateral lender noted that between June 1 and Aug. 15, the rates of Philippine local currency bonds increased almost across the board, save for the three-month IOUs, whose rate declined by 58 basis points.

The yield on four-year bonds posted the biggest jump of 74 bps during the period, followed closely by the 73-bp climb of one-year debt paper.

The 20-year tenor, meanwhile, posted the smallest yield increase of 16 bps.

According to the ADB, “uncertainties weighed heavily on investor decisions, resulting in a preference for short-dated treasury bills, particularly the three-month tenor, as investors chose caution while awaiting the outcomes of domestic and international events.”

“The higher yields also point to the risks that investors see in the long-term,” the ADB added.

On the domestic front, investors were “mindful” of the high inflation environment as well as “slowing” gross domestic product (GDP) growth.

During the said period, the government announced that  GDP grew 6 percent in the second quarter—the slowest economic expansion in three years.

In July, headline inflation rose 5.7 percent year-on-year, and accelerated to 6.4 percent in August, the fastest rate of increase in prices of basic commodities in over nine years.

Also, investors were concerned about “negative sentiments in the foreign exchange market,” the ADB said, as the peso remained at almost 13-year lows.

“Investors are also anticipating additional rate hikes by the Bangko Sentral ng Pilipinas (BSP),” it added.

The BSP eventually raised by another 50 bps the key interest rate in August—the most aggressive hike in a decade, due to higher-than-expected inflation.

So far this year, the BSP already raised the policy rate by a total of 100 bps.