‘Philippines bond yields to ease as BSP nears rate peak’

MANILA, Philippines — Government bond yields could decline over the next six to 12 months as inflation peaks and the Bangko Sentral ng Pilipinas (BSP) approaches the end of its monetary tightening cycle, according to Manulife Investments Philippines.

Jean Olivia de Castro, head of fixed income at Manulife Investments Philippines, said October’s 7.8-percent inflation would likely keep the central bank cautious in the near term even as interest rates approach their peak.

“The 7.8-percent inflation print keeps the BSP hawkish near term, but we believe policy is approaching peak tightness,” De Castro said.

“Philippine bond yields may remain elevated over the next few months, but over a six- to 12-month horizon, we expect yields to move lower as inflation peaks and the market begins pricing the end of the tightening cycle, making current levels increasingly attractive for adding duration,” she said.

Bond yields represent the returns investors demand for holding government debt. They generally move in the opposite direction of bond prices, meaning falling yields could increase the value of existing bonds.

De Castro sees the most attractive opportunities in intermediate-term bonds, which offer relatively high returns at current yields and potential price gains once interest rates decline.

However, she cautioned that persistent inflation, peso depreciation and elevated global bond yields could keep domestic borrowing costs higher for longer.

A weaker peso could also complicate the BSP’s policy decisions by raising the cost of imported goods and fueling inflation expectations.

Meanwhile, Manulife Investments Philippines head of equities Elle Jamil said Philippine stocks already appeared attractively valued, with prospects for monetary easing within six to 12 months potentially improving investor sentiment.

The local stock market currently offers an aggregate dividend yield of around four percent, which Jamil said could provide some protection against further declines.

“Any prospect of easing oil and other commodity prices can serve as a catalyst for the local market,” Jamil said.

However, higher fuel, electricity, wage and raw material costs have squeezed corporate profit margins, while elevated borrowing costs and weaker consumer spending have weighed on property developers, retailers and heavily indebted companies.

Jamil said businesses selling essential goods and services, utilities, infrastructure firms and companies with strong balance sheets were relatively better positioned to withstand these pressures.

Exporters earning in dollars could also benefit from peso weakness, while banks with strong franchises might gain from wider lending margins.