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Manila Bulletin devider Business devider Banking & Finance devider Domestic lenders demand higher yields, force below-target government borrowing amid Iran war

Domestic lenders demand higher yields, force below-target government borrowing amid Iran war

Published Mar 10, 2026 03:23 pm

At A Glance

  • Domestic lenders showed more tempered interest in the government's long-dated debt papers during the latest auction, leading the Bureau of the Treasury (BTr) to be more selective in its awarding process.
The Marcos Jr. administration is facing difficulty borrowing amid the war in Iran, as domestic lenders demanded higher yields, forcing the government to cap long-dated treasury bonds (T-bonds) at less than half of its intended ₱20-billion fundraising target.
The Bureau of the Treasury (BTr) raised only ₱9.5 billion from its T-bonds offering on Tuesday, March 10, even as total bids reached ₱38.5 billion, making the auction 1.9 times oversubscribed.
This demand was also significantly lower than the ₱80.3 billion tendered during the previous seven-year bond auction on Feb. 10.

With a remaining term of seven years and five months, the bonds were awarded at an average rate of 6.473 percent. This average yield was capped by the auction committee, resulting in the partial award.

Meanwhile, the average rate stood 61.4 basis points (bps) higher than the 5.859 percent recorded in the Feb. 10 auction, and it remained above the 4.25-percent policy rate currently set by the Bangko Sentral ng Pilipinas (BSP).

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said the more-than-half-a-percentage-point (ppt) surge in interest rates reflects the caution of domestic creditors in investing in long-term government IOUs.

He said investors showed caution on longer-term bonds due to geopolitical tensions in the Middle East, which pushed global oil prices to three-year highs.

A weaker peso, which hit another all-time low at ₱59.5 to the United States (US) dollar on the first trading day of the week, coupled with higher oil prices, could drive up import costs and inflation.

Ricafort said these factors may reduce the likelihood of future policy easing and could even lead the Bangko Sentral ng Pilipinas (BSP) to hike rates to maintain price stability.

BSP Governor Eli M. Remolona Jr. earlier signaled possible policy tightening if global crude oil prices breach $100 per barrel in an effort to stabilize inflation. Oil prices have been fluctuating since the flare-up of the military conflict in the Middle East.

Nymex crude oil hit $119.48 on March 9, 2026, its highest level in over two years. This surge could raise import costs, widen the trade deficit, and drive-up local fuel prices, transport fares, wages, and other goods and services.

T-bonds will account for 60.7 percent of the government’s planned borrowing of ₱500 billion for the first quarter. The government also plans to raise ₱324 billion through T-bills, representing the remaining 39.3 percent of total domestic borrowing.

The Philippines relies more on local borrowing through domestic debt than on foreign loans. This strategy leverages domestic banks and creditors that are flush with cash while reducing exposure to foreign exchange risks and volatility.

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