PH bond yields climbed fastest in region amid high inflation, global selloff

MANILA, Philippines — Yields of bonds issued by the Philippines have climbed the fastest in the region due to elevated domestic inflation and the global selloff on expectations of a stronger US economic recovery.

An Oxford Economics report Wednesday showed the Philippines’ 10-year bond yields rose by over 80 basis points (bps) during the February 25 to March 16 period.

The about 60-bps increase in 10-year bond yields from end-January to February 25, meanwhile, was only exceeded by the jump of Australian bonds.

“In several Southeast Asian countries, some of the recent upward pressure on yields came instead from higher inflation, especially in the Philippines and Malaysia,” Oxford Economics head of Asia economics Louis Kuijs said.

Headline inflation averaged 4.5 percent as of end-February, already above the 2-4 percent target range, no thanks to expensive food, especially pork, and normalizing global oil prices.

But across the region, bond yields were picking up due to “the prospect of stronger growth and higher interest rates in the US” following the rollout of the Biden administration’s $1.9-trillion stimulus against the COVID-19 pandemic, Oxford Economics said.

For Oxford Economics, this would also lead to weaker currencies in the region. “While we expect further international bond yield increases to be modest, if US rates rise more substantially, yields in Southeast Asia, India, Hong Kong, and Australia will likely feel more upward pressure than those in China and Japan, while Asia-Pacific exchange rates should depreciate further.”

In a separate March 15 report, Oxford Economics chief global economist Innes McFee and lead economist Adam Slater said the sharp rise in global bond yields could impact economic growth as borrowing costs increase.

Oxford Economics’ projections showed that the Philippines’ real gross domestic product (GDP) may be reduced by about 0.3 percentage points (ppts) compared to the baseline forecast if bond yields continued to increase and impacted foreign exchange and equity markets.