As of January 31, 2026
PHP
Local government bonds ended February on a mixed note. Longer-dated bonds in the 20–25 year segment underperformed, with yields rising by around 2–16 bps month-on-month. In contrast, the rest of the curve fell, with yields declining by about 3–15 bps. The 5–7 year tenor bucket was the best performer during the month.
Market sentiment was supported by strong demand for the recent jumbo 10-year issuance, highlighting the ample liquidity currently present in the domestic bond market. Sentiment further improved toward the latter part of the month after the National Treasurer provided updates on the Philippines’ potential inclusion in the JPMorgan Government Bond Index. If realized, estimated inflows of up to USD 3 billion could provide a meaningful boost to the local market. More importantly, index inclusion could support deeper and more sustained foreign participation in the Philippine government bond space.
Macro Fundamentals and Monetary Policy
The BSP’s easing cycle has entered a more cautious phase, weighing on local rates. The shift toward a more neutral-to-hawkish bias, alongside guidance that further cuts will be slower and more conditional, has reduced confidence in a sustained easing trajectory and tempered rate-cut expectations into 2026.
Portfolio Positioning
We ended the month with an underweight duration position in our local fixed income portfolios, allowing the portfolios to capitalize from the recent rally and shift towards shorter dated bonds. This positioning reflects our near-term view that the curve is likely to further bear-steepen as the market gradually prices in heavier supply concentrated in the 5Y, 7Y, 10Y, and 20Y tenors. Our approach remains active, combining tactical participation in weekly auctions with a longer-term strategic view on the direction of local bond yields.
Outlook
On the bond supply front, the BTr’s 1Q26 borrowing program indicates a meaningful increase in auction sizes across the yield curve, pointing to higher near-term supply. In this dynamic environment, we continue to prioritize holding liquid securities, allowing us to adjust portfolio positioning efficiently toward segments of the curve where we see value, while remaining mindful of key market catalysts that could influence rate movements in the short to medium term.
USD
U.S. Treasury markets ended the month stronger, with yields declining by around 15–29 bps across the curve despite ongoing geopolitical tensions and policy uncertainty.
On the geopolitical front, renewed tensions between the United States and Iran added another layer of market uncertainty. This backdrop kept overall risk appetite somewhat contained and supported flows into safe-haven assets, including U.S. Treasuries. As a result, demand for duration remained firm, reinforcing a flattening bias in the yield curve.
Economic data during the period also sent mixed signals. A softer GDP print pointed to some moderation in growth, while inflation remained relatively sticky. This combination of slowing growth and persistent inflation continues to complicate the policy outlook and keeps markets sensitive to incoming macro data.
Macro Fundamentals and Monetary Policy
The Federal Reserve maintained a cautious and patient stance, reiterating its data-dependent approach. Chair Powell emphasized that policy easing will only be considered once there is clearer evidence that inflation is sustainably moving back toward target. As a result, rate volatility stayed relatively contained, with investors opting to stay defensively positioned.
Policy Risks Beyond Data
Beyond macroeconomic indicators, fiscal and trade policy developments under the administration of Donald Trump have introduced an additional layer of uncertainty for markets. Potential shifts in fiscal priorities and trade policies could influence financial conditions and investor sentiment, adding complexity to the interest rate outlook.
Portfolio Positioning
Our portfolio continues to tactically trade sovereign bonds and PH credits. We have reduced our long-end positions and maintained a neutral duration for our USD portfolios. On the credit side, we continue to favor high-quality corporate issuers with strong balance sheets and moderate duration, which we view as well positioned to benefit from potential spread compression.
Outlook
We expect volatility to remain elevated in the near term as markets recalibrate their expectations around the policy path. Given the fluid macro environment, we maintain a nimble approach. Our preference remains for duration exposure in the belly of the curve, complemented by selective credit positions that offer attractive carry while maintaining resilience against ongoing market volatility.
Local government bonds ended February on a mixed note. Longer-dated bonds in the 20–25 year segment underperformed, with yields rising by around 2–16 bps month-on-month. In contrast, the rest of the curve fell, with yields declining by about 3–15 bps. The 5–7 year tenor bucket was the best performer during the month. Market sentiment was supported by strong demand for the recent jumbo 10-year issuance, highlighting the ample liquidity currently present in the domestic bond market. Sentiment further improved toward the latter part of the month after the National Treasurer provided updates on the Philippines’ potential inclusion in the JPMorgan Government Bond Index. If realized, estimated inflows of up to USD 3 billion could provide a meaningful boost to the local market. More importantly, index inclusion could support deeper and more sustained foreign participation in the Philippine government bond space. The BSP’s easing cycle has entered a more cautious phase, weighing on local rates. The shift toward a more neutral-to-hawkish bias, alongside guidance that further cuts will be slower and more conditional, has reduced confidence in a sustained easing trajectory and tempered rate-cut expectations into 2026.
We ended the month with an underweight duration position in our local fixed income portfolios, allowing the portfolios to capitalize from the recent rally and shift towards shorter dated bonds. This positioning reflects our near-term view that the curve is likely to further bear-steepen as the market gradually prices in heavier supply concentrated in the 5Y, 7Y, 10Y, and 20Y tenors. Our approach remains active, combining tactical participation in weekly auctions with a longer-term strategic view on the direction of local bond yields.
On the bond supply front, the BTr’s 1Q26 borrowing program indicates a meaningful increase in auction sizes across the yield curve, pointing to higher near-term supply. In this dynamic environment, we continue to prioritize holding liquid securities, allowing us to adjust portfolio positioning efficiently toward segments of the curve where we see value, while remaining mindful of key market catalysts that could influence rate movements in the short to medium term.
