Philippine bond yields posted one of the largest increases in emerging East Asia in recent months as the war in the Middle East fueled inflation, prompted tighter monetary policy, and heightened investor concerns over the country’s economic vulnerabilities, according to the Asian Development Bank (ADB).

In its June 2026 Asia Bond Monitor published last Monday, June 15, the ADB said local currency (LCY) government bond yields in its host country rose by an average of 120 basis points (bps) across all maturities between Feb. 2 and May 29.

“The largest yield increases in the region were recorded in the Philippines, Indonesia, and South Korea,” the report said.

The Manila-based multilateral lender attributed the sharp rise in Philippine yields to the inflationary impact of the Middle East conflict, which pushed up global oil prices and increased expectations of further monetary tightening.

The ADB noted that inflation soared to 7.2 percent in April and 6.8 percent in May from 4.1 percent last March as higher transportation, energy, as well as food prices rippled through the economy.

As such, the Bangko Sentral ng Pilipinas (BSP) hiked its policy rate by 25 bps to 4.5 percent last April in response to mounting price pressures, the report noted.

Investor sentiment was further dampened by less favorable views from major credit rating agencies.

“Risk premia widened as S&P Ratings revised its Philippine sovereign outlook from positive to stable on April 8 and Fitch Ratings adjusted its outlook from stable to negative on April 20, both citing elevated exposure to the global energy shock,” the ADB said.

The report also noted that the Philippines recorded the largest widening in credit default swap (CDS) spreads in the region.

“The widening of the spread was most pronounced in the Philippines (4.4 bps) due to its exposure to the global energy shock as a net energy importer, as well as its elevated current account and budget deficits,” the ADB noted.

The rise in yields was accompanied by a retreat among foreign investors amid heightened geopolitical uncertainty.

ADB data showed that foreign holdings of government securities (GS) declined to four percent at the end of March from five percent in February, reflecting growing risk aversion as investors reassessed exposure to markets vulnerable to the global energy shock.

Trading activity in Philippine GS also weakened during the first quarter as higher yields and foreign bond outflows weighed on the market following the escalation of the Middle East conflict, according to the report.

The pressure extended to the corporate bond market, where the Philippines remained the least liquid market in emerging East Asia, the ADB said.

“The Philippines corporate bond bid-ask spread also increased the most, as investment sentiment dampened over the first quarter of 2026’s weaker-than-expected growth performance, rising inflationary pressures, and expanding fiscal and current account deficits,” the report said.

Philippine gross domestic product (GDP) growth slowed further to 2.8 percent in the first quarter from three percent in the fourth quarter of 2025 amid delays in the 2026 national budget implementation and weaker consumer demand due to rising prices, the ADB noted.

Despite the challenging market environment, ADB data showed that the Philippines’ LCY bond market expanded 2.8 percent quarter-on-quarter to ₱14.1 trillion at end-March.

Government bonds outstanding increased 3.9 percent during the quarter, while the corporate debt stock rose 4.3 percent.

Total bond issuance jumped 32.5 percent in the first quarter as government bond issuance more than doubled to ₱1.2 trillion under the national government’s (NG) front-loading borrowing strategy, the ADB said.

The increase was partly driven by the issuance of ₱297.9 billion worth of new 10-year benchmark bonds in February.

The ADB said the Philippines also posted the largest quarterly increase in government bond issuance among Association of Southeast Asian Nations (ASEAN) economies as governments accelerated borrowing amid heightened global uncertainty.

Corporate debt issuance likewise rose 67.1 percent quarter-on-quarter, supported largely by the banking sector, which accounted for 86.8 percent of total corporate bond sales during the period due to refinancing needs.

According to the report, banks and other financial institutions remained the largest GS holders, with their combined share rising to 59.4 percent at end-March from 57.3 percent last February.

Meanwhile, the Philippines’ sustainable bond market expanded 11.7 percent quarter-on-quarter to $17.9 billion at end-March, supported by robust issuance during the quarter, the ADB said.

Sustainable bond issuance in the first quarter increased more than fivefold from the previous quarter to $3.4 billion, driven mainly by strong private-sector issuers.