T-bonds fetch higher yields as Iran war raises inflation risks

THE GOVERNMENT made a full award of the Treasury bonds (T-bonds) it offered on Tuesday at a higher average rate due to renewed inflation worries as the worsening conflict in the Middle East raised oil supply risks.

The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the reissued seven-year bonds it auctioned off, with total bids for the tenor reaching P47.769 billion, above the amount on offer.

This brought the outstanding volume for the bond series to P215 billion, the Treasury said in a statement after the auction, adding that it made a full award as the offer was oversubscribed.

The reissued bonds, which have a remaining life of four years and 10 months, were awarded at an average rate of 5.717%. Accepted yields ranged from 5.6% to 5.74%.

The average yield of the reissued papers rose by 16 basis points (bps) from the 5.557% fetched for the series’ last award on Feb. 3 but was 40.8 bps below the 6.125% coupon for the issue.

This was also 11.6 bps above the 5.601% fetched for the same bond series and 10.1 bps higher than the 5.616% quoted for the five-year paper — the benchmark tenor closest to the remaining life of the issue — at the secondary market before Tuesday’s auction, based on the PHP Bloomberg Valuation Service Reference Rates data provided by the BTr.

A trader said the average yield fetched for the issue was at the higher end of market expectations.

“Yields were high as expected due to the current US-Iran conflict. Additionally, the market seems to be anticipating stronger inflation data to be released on Thursday given the preemptive increase in yields,” the trader said in a text message. “Demand was decent, not incredibly high, as some players are content to wait for 07-71 in the secondary market.”

Market players were hesitant to park their cash in longer tenors due to the geopolitical risks, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Yields went up as the situation in the Middle East has caused oil prices to rise due to supply concerns, and this could lead to higher import costs and inflation that could reduce the odds of future monetary easing, he said.

Mr. Ricafort added that the BTr’s latest issuance of new 10-year benchmark bonds worth P297.94 billion could have contributed to the tepid demand as this siphoned off liquidity from the market.

Brent rose more than $3 on Tuesday for a third day of gains as the widening US-Israeli conflict with Iran and threats to shipping via the Strait of Hormuz heightened fears of supply disruptions from the key Middle East producing region, Reuters reported.

Brent crude futures were at $80.89 a barrel, up $3.15 or 4.1% by 0745 GMT. On Monday, the contract surged to as high as $82.37, its highest since January 2025, though it pared those gains to settle 6.7% higher.

US West Texas Intermediate crude climbed $2.55 or 3.6% to $73.78 a barrel. In the previous session, the contract initially climbed to its highest since June 2025 before sliding back to settle up 6.3%.

The US and Israeli air war against Iran widened on Monday with Israel attacking Lebanon and Iran responding with strikes against energy infrastructure in Gulf countries and against tankers in the Strait of Hormuz.

Tankers and container ships are also avoiding the waterway as insurers have canceled their coverage for vessels, while global oil and gas shipping rates have soared.

Concerns about transiting the waterway increased after Iranian media reported on Monday that a senior Iranian Revolutionary Guards official said the Strait of Hormuz is closed and warned Iran will fire on any ship trying to pass.

About 20% of the world’s oil and gas pass through the Strait of Hormuz.

Analysts expect oil prices to remain elevated over the coming days while markets focus on the impact of the escalating Middle East conflict.

Meanwhile, a BusinessWorld poll of 17 analysts yielded a median forecast of 2.4% for February inflation, which would be the quickest clip in 13 months or since the 2.9% in January 2025.

This would be faster than the 2% recorded in January and the 2.1% in February 2025 and would mark the straight month that inflation settled within the Bangko Sentral ng Pilipinas’ 2%-4% annual target.

Still, this is close to the low end of the central bank’s 2.3%-3.1% forecast for the month.

The BTr wants to raise P248 billion from the domestic market this month, or P108 billion in T-bills and P140 billion via Treasury bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at P1.647 trillion or 5.3% of gross domestic product this year. — Aaron Michael C. Sy with Reuters