EASING inflation and slower economic growth helped Philippine government bonds gain ground, the Asian Development Bank (ADB) said, with yields falling despite the Bangko Sentral ng Pilipinas’ (BSP) rate hikes.
In its September 2026 Asia Bond Monitor, the ADB said yields on local-currency government debt securities fell by an average of 21 basis points between June 1 and Aug. 31, with the decline concentrated in maturities of one year or longer.
The decline came despite cumulative BSP rate hikes of 50 basis points (bps) during the period as the central bank responded to inflation and other economic risks.
“Despite cumulative rate hikes of 50 basis points in June and August, moderating inflation and weakening growth exerted downward pressure on yields,” the ADB said.
Inflation eased to 6.1 percent in August from 6.2 percent a month earlier due to slower increases in key food items and energy costs. While inflation continued to decline, it remained above the 2.0 to 4.0 percent target of the central bank.
This has prompted the BSP policymaking body Monetary Board to raise key policy rates by a total of 75-bps, bringing rates to 5.0 percent.
At the same time, Philippine economic growth slowed to 2.3 percent in the second quarter from 2.8 percent in the first quarter, with investment growth weakened by reduced government construction activity.
Outstanding local-currency debt securities increased 3.3 percent quarter-on-quarter to P14.5 trillion at the end of June, slightly faster than the 2.8-percent quarterly increase recorded in the first quarter.
Excluding debt securities with maturities of one year or less, the local-currency bond market increased 2.7 percent quarter-on-quarter to P13.2 trillion. However, this was slower than the 3.5-percent quarterly growth recorded in the first quarter.
Government bonds accounted for much of the market, with outstanding government securities rising 2.6 percent from the previous quarter. The increase, however, was slower than the 3.4-percent growth recorded in the first quarter.
Outstanding corporate bonds grew 3.2 percent quarter-on-quarter, also slower than the 4.4-percent expansion in the previous quarter.
Bond issuance, meanwhile, dropped sharply in the second quarter following a surge in government borrowing at the start of the year.
Total local-currency bond issuance fell 45.1 percent quarter-on-quarter to P476.2 billion in the second quarter, reversing part of the sharp increase recorded in the previous three months.
The Manila-based lender said issuance had surged 211.6 percent in the first quarter, driven largely by front-loaded government borrowing.
Government bond issuance declined 46.1 percent quarter-on-quarter in the second quarter, while corporate bond issuance fell 41 percent.
The sharp quarterly decline therefore reflected, in part, the normalization of issuance following the unusually strong borrowing activity at the beginning of the year.
Despite the fluctuations in issuance, the Philippine bond market remained heavily supported by domestic investors.
Domestic investors held 96 percent of Philippine local-currency government debt securities at the end of June, highlighting the dominant role of local institutions in the sovereign bond market.
Banks were the largest investor group, accounting for 40.6 percent of total holdings, up from 37.3 percent in May. Bank holdings of Philippine government securities also increased 11.9 percent month-on-month.
Banks and other financial institutions collectively accounted for 61.2 percent of total holdings at the end of June, up from 58.1 percent in May.
Foreign investors, meanwhile, increased their holdings by 7.1 percent month-on-month, although their share of the market remained relatively small, rising only to 4 percent from 3.9 percent.
