The national government was forced to scale back its debt auction on Tuesday, March 17, as escalating Middle East tensions drove borrowing costs to their highest levels in over a year, deterring the Marcos administration from meeting its full fundraising target.

The Bureau of the Treasury opted for a partial award of its benchmark 10-year Treasury bonds, raising ₱10.2 billion, or just over half of the ₱20 billion initially offered. While the auction remained oversubscribed with total bids reaching ₱23.3 billion, the appetite for long-term Philippine debt showed signs of significant erosion.

Investor demand was notably weaker compared to a similar auction on Jan. 6, which drew a robust ₱72.7 billion in tenders.

The Treasury committee capped the average rate at 6.786 percent for the notes maturing in February 2036. By rejecting more aggressive bids that reached as high as 6.800 percent, officials signaled a resistance to the market's demand for higher premiums.

Despite the cap, the resulting yield stood 80.1 basis points higher than the 5.985 percent rate fetched in early January. The auction rate also settled above the secondary market benchmark, known as the BVAL, which was quoted at 6.742 percent on the same day.

Market participants are increasingly wary of longer-dated securities as geopolitical volatility in the Middle East fuels a rally in global oil prices. This inflationary pressure is further compounded by the local currency’s weakness, with the peso trading at a record ₱59.95 against the US dollar.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., noted that these factors have reinforced expectations that inflation will remain sticky, potentially forcing the Bangko Sentral ng Pilipinas to maintain a hawkish stance for longer.

The surge in yields complicates the government’s borrowing strategy for the first quarter, where it intends to raise ₱500 billion from the domestic market.

Treasury bonds are expected to account for 60.7 percent of that total, while the remaining ₱324 billion is slated to be raised through shorter-term Treasury bills. The administration remains committed to a domestic-heavy borrowing mix to mitigate foreign exchange risks, even as local creditors demand higher returns to compensate for the darkening global economic outlook.