The Philippine government sold just over half the bonds it offered on Wednesday, Nov. 4, as investors balked at locking in long-term debt with inflation at its fastest pace in three and a half years and the central bank still raising rates.

The Bureau of the Treasury raised 15.5 billion pesos from a reissue of bond series FXTN 10-71, against a planned 30 billion pesos, at an average yield of 8.239%, according to its auction summary. Tenders totaled 21.9 billion pesos, a bid-to-cover ratio of 0.7, and the bureau rejected 6.4 billion pesos of competitive bids.

For investors across Asia, the sale shows how far Philippine borrowing costs have reset in 2026. The country's 10-year yield has risen more than 200 basis points this year, the most in emerging Asia, according to Bloomberg data in a report carried by BusinessWorld on Nov. 2. The government also needs to keep borrowing heavily at home: it projects gross borrowing of 3.3 trillion pesos next year, up 20.85% from this year's program, with 72% to be raised domestically, BusinessWorld reported, citing budget documents.

Fourth Partial Bond Award in a Row

The bonds were first issued as 10-year paper in 2023, mature in August 2033 and carry a 6.625% coupon. The Treasury accepted yields of 8.1% to 8.3%. The average was 88.7 basis points above what the same series fetched on Sept. 8, and 16.2 basis points above its secondary-market level before the auction, BusinessWorld reported, citing Treasury data.

A trader told BusinessWorld the partial award reflected low demand. Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said investors were wary of the long end of the curve while the Middle East conflict remains unresolved, and that its effect on inflation, together with a strong El Niño, could bring further rate increases.

It was the fourth weekly bond auction in a row at which the Treasury accepted less than it offered, its auction results show. On Oct. 13, bids exceeded the offer but the bureau took 25.4 billion pesos of 35 billion pesos. It raised 21.4 billion of 30 billion pesos on Oct. 20, when bids of 27.6 billion pesos fell short of the offer, and about 21.8 billion of 35 billion pesos on Oct. 27, when a newer 10-year bond cleared at 8.189%. Across the four sales, it borrowed about 84 billion of the 130 billion pesos offered, by Capital Times' count.

Short-term paper has drawn more interest. At Tuesday's bill auction, tenders for Treasury bills reached 1.9 times the 45 billion pesos on offer, although the one-year bill fell short of its program because of insufficient competitive bids, the bureau said. Average rates rose to 6.438% for three-month bills, 6.646% for six-month bills and 6.756% for one-year bills. Bill rates have now risen for 11 straight weeks, BusinessWorld reported.

BSP Says Easing Is Not Yet on the Table

Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. told reporters on Tuesday that the central bank was not yet considering cuts. “Easing? Not yet. We’re still in a tightening cycle, so we don’t know,” he said, according to The Philippine Star.

The Monetary Board raised its policy rate by 50 basis points to 5.5% on Oct. 22, taking its increases since April to 125 basis points. Remolona said further tightening would be less likely if the gap between actual and potential output became too negative, and that the bank was watching core inflation closely, BusinessWorld reported. Deputy Governor Zeno Abenoja said there was a chance inflation could top 8% in the coming months, according to the Star.

Headline inflation reached 7.2% in September. Economists polled by BusinessWorld had a median forecast of 7.6% for October, which would be the fastest since February 2023, while the central bank's own range for the month is 7.1% to 8.1%. The Philippine Statistics Authority scheduled the October figures for Thursday, Nov. 5.

Money-market rates are moving up too. The average yield at the central bank's seven-day term deposit auction rose to 5.5429% on Wednesday, above the policy rate, as bids of 74.66 billion pesos fell short of the 80 billion pesos offered, BusinessWorld reported.

Weak Peso Adds to the Funding Bill

The peso closed at 63.535 per dollar on Wednesday, from 63.47 on Tuesday, according to Bankers Association of the Philippines data cited by BusinessWorld. It hit a record low of 64.17 on Oct. 27. Remolona said the central bank dislikes depreciation that is too sharp and that it goes “in and out” of the currency market, BusinessWorld reported.

The proposed 2027 budget assumes an average of 60 to 62 pesos per dollar, and a weaker currency raises the peso cost of foreign debt service, economists told BusinessWorld. This year's deficit is capped at 1.659 trillion pesos, or 5.4% of GDP, and the Treasury aims to raise 283 billion pesos at home in November, including 115 billion pesos of bonds, the paper reported.

Indonesia's government also raised less than its target at an Oct. 27 auction as its 10-year yield climbed to a six-year high.

At least one foreign fund sees value at these levels. Carol Lye, a portfolio manager at Brandywine Global Investment Management, told Bloomberg that Philippine bonds could beat regional peers once inflation stabilizes and war risks ease, but said thin liquidity and the risk of higher yields were keeping the firm from buying more for now.

Third-quarter GDP figures are due on Nov. 9. The next day, the Treasury is scheduled to auction a four-year bond, according to its fourth-quarter calendar, and the Monetary Board holds its last policy meeting of the year on Dec. 17.