Rising bond yields, fueled by global uncertainty and the ongoing conflict in the Middle East, are making it increasingly difficult for the national government (NG) to raise funds, forcing it to reject or scale back debt offers in recent weeks since the war began.

During the treasury bonds (T-bonds) auction on March 24, Tuesday, the Bureau of the Treasury (BTr) rejected all bids for the reissued three-year IOUs despite receiving ₱13.4 billion in tenders, as investors demanded significantly higher rates. The government had aimed to raise between ₱10 billion and ₱20 billion from the three-year bonds. The average bid yield for the tenor reached 6.819 percent, well above the prevailing PHP Bloomberg Valuation (BVAL) benchmark of 6.446 percent.

Meanwhile, the BTr awarded only ₱5.6 billion from the 25-year T-bonds offer, even as total bids reached ₱13.8 billion. The target for these bonds was also ₱10 billion to ₱20 billion. These long-dated securities were priced at a flat 7.4 percent, higher than the 7.247-percent BVAL rate.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said the government awarded partially on these longer-dated IOUs as higher bid yields, compared to the three-year T-bonds, were closer to market rates.

Note that both the benchmark and awarded rates were significantly higher than the policy rate set by the Bangko Sentral ng Pilipinas (BSP) at 4.25 percent. As such, the two bonds raised only a total of ₱5.6 billion out of the up to ₱40 billion the government had hoped to raise.

Based on the auction results and market benchmarks, the BTr displayed a cautious and defensive stance, opting to reject or limit awards rather than accept the higher interest rates demanded by the market.

Market watchers said the surge in yields reflects a broad repricing of risk, exacerbated by rising oil prices and inflation concerns linked to the Middle East conflict.

“Yields are rising because markets are repricing risk all at once given higher global rates, a weaker peso, and heavier government borrowing needs,” SM Investments Corp. (SMIC) group economist Robert Dan Roces explained.

“This means investors are asking for more compensation for duration and FX [foreign exchange] risk, especially with oil pushing inflation risks back up. That shows up in auctions as higher bid rates and softer demand at lower yields,” Roces added.

For Reyes Tacandong & Co. senior adviser Jonathan Ravelas, “This isn’t surprising. Investors are still cautious and are demanding higher yields amid global uncertainty and sticky inflation risks.”

“If rates stay elevated and volatility persists, we may continue to see partial awards in the coming weeks. What matters is that the government is not forced to borrow at unfavorable rates—better to be disciplined now than lock in expensive debt,” Ravelas said.

The rise in yields has been particularly pronounced in the Philippines compared to regional peers. Data from Singapore-based United Overseas Bank Ltd. (UOB) as of Wednesday, March 25, showed that Philippine government securities (GS) are among the worst performers year-to-date, with yields rising sharply across tenors.

For instance, Philippine two-year bonds yield climbed to 6.19 percent, the highest among the developing and advanced economies monitored by UOB. It surpassed Indonesia’s 6.06 percent, Vietnam’s 3.29 percent, Malaysia’s 3.1 percent, Singapore’s 1.61 percent, Thailand’s 1.36 percent, and China’s 1.31 percent. Since January, the yield has risen by 84.4 basis points (bps), still among the highest, although trailing Indonesia’s 95.6 bps year-to-date.

For the 10-year tenor, Philippine government bonds are priced at 7.06 percent, making them the most expensive among peers. This is higher than India’s 6.92 percent, Indonesia’s 6.91 percent, Vietnam’s 4.2 percent, Malaysia’s 3.58 percent, Singapore’s 2.28 percent, Thailand’s 2.24 percent, and China’s 1.83 percent. Year-to-date, the 10-year yield has increased by 100.4 bps, significantly outpacing Indonesia’s 74 bps and Thailand’s 57.6 bps.

Amid rising yields, think tank Capital Economics included 10-year Philippine GS among the worst-performing emerging market (EM) bonds this week. In a March 23 report, Capital Economics Asia-Pacific head of markets Thomas Mathews said Philippine bonds, whose yield jumped by over 10 bps week-to-date, joined those from South Africa, Chile, Mexico, Poland, India, Israel, Indonesia, and Taiwan among the worst-performing EM bonds.

The pressure on government borrowing comes as the Marcos Jr. administration ramps up its financing program to offset slower, corruption-hit public spending in 2025. Borrowing for the first quarter was programmed to surge to ₱824 billion, up sharply from ₱437 billion in the previous quarter, with T-bonds accounting for three-fifths of total.