Domestic lenders demanded higher lending rates from the government through the sale of long-dated debt papers, but the government rejected the bids after deeming the rates too expensive while demand remained subdued.

During the latest treasury bond (T-bond) auction on Tuesday, July 14, the Bureau of the Treasury (BTr) failed to meet its ₱30-billion borrowing program as investors demanded interest rates of up to 8.3 percent.

In a statement, the BTr said its auction committee decided to fully reject bids for the reissued seven-year IOUs, series 10-71, which carry a remaining term of seven years and one month. Total tenders reached ₱18.1 billion, significantly lower than the government’s offering.

Had the BTr opted to award the bids, the average rate for the debt papers would have reached 7.575 percent. Investor demand during the auction varied, with bid rates ranging from a low of seven percent to a high of 8.3 percent.

These yields were significantly higher than prevailing market benchmarks. As of July 14, the seven-year PHP BVAL rate was quoted at 7.16 percent, while the specific benchmark for series 10-71 stood at 7.121 percent.

To date, the bond series has an outstanding volume of ₱239.5 billion.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said the government decided to reject all bids for the IOUs because demand was far below the offered amount while borrowing rates were elevated.

Ricafort said accepting the bids would have resulted in an average interest rate that was “much higher” than the comparable seven-year PHP BVAL yield of 7.16 percent.

Murray Collis, Manulife Investment Management head of Asia fixed income, told a virtual press briefing that the United States (US) Federal Reserve’s (Fed) policy, compounded by oil prices, will remain a major factor for several local markets, including the Philippine debt market.

“Even if the Fed continues to move gradually, a stabilization—or even a decline—in oil prices would support Philippine bonds, the peso, and overall financial conditions,” Collis said.

Collis further said easing price pressures due to falling oil prices would allow the Bangko Sentral ng Pilipinas (BSP) to loosen or adopt a more neutral monetary policy stance. However, a resurgence in inflation would force the central bank to maintain its hawkish stance to stabilize prices.

Planned domestic borrowings are set to swell in the third quarter of 2026, with the target increasing from ₱784 billion in the second quarter to ₱1.12 trillion. The upcoming borrowing plan is the highest among the first three quarters, compared with ₱824 billion in the first quarter and ₱784 billion in the second quarter.