Philippine government securities anticipation of December rate cut drives mixed yield performance

Yields on Philippine government securities showed a mixed performance last week as market participants positioned themselves ahead of a potential rate cut by the Bangko Sentral ng Pilipinas (BSP) in December. Short-term Treasury bill rates declined, reflecting growing expectations that the Monetary Board will reduce borrowing costs at its upcoming meeting on December 11. However, medium- and long-term bond yields moved unevenly, with some rising slightly due to inflation concerns linked to the depreciation of the peso.

A bond trader noted that declines on the short end of the curve “reflected market expectations of continued BSP rate cuts in December and in 2026.” This sentiment aligns with previous comments from BSP Governor Eli M. Remolona, Jr., who indicated that a quarter-point reduction is possible. The central bank has already implemented several rate cuts since mid-2024 as economic growth has decelerated and inflation remained subdued.

Supporting these market expectations, financial analysts such as BMI, a unit of Fitch Solutions, have forecast another 25 basis points rate cut in December 2025, with further easing anticipated in 2026. These projections are underpinned by continued low inflation and the central bank’s efforts to stimulate domestic economic growth amid signs of weakening momentum.

Data from the Philippine Statistics Authority confirmed that inflation stayed steady at 1.7% in October 2025, remaining below the BSP’s target for the eighth consecutive month. This persistent subdued inflation gives the central bank room to consider additional rate reductions to support the economy. BSP’s earlier decisions also illustrate this trend , the bank cut its benchmark policy rate by 25 basis points to 5.0% in August 2025, marking its third consecutive reduction amid easing inflation and robust second-quarter growth. The easing continued in October, with another 25 basis points cut to 4.75%, despite concerns over slower economic growth linked to irregularities in state flood-control spending.

Investor sentiment remains somewhat fragile due to these revelations about irregularities in government infrastructure spending, which some economists believe could curtail public outlays and weigh on overall economic expansion. Former Finance Secretary Ralph Recto has suggested that full-year GDP growth might fall below 5%, adding to the rationale for accommodative monetary policy.

The peso’s recent depreciation against the US dollar has kept yields on medium- and long-term government securities slightly elevated, as markets assess potential inflation pass-through effects. Trading volumes thinned late last week as investors awaited delayed US economic data releases following a government shutdown in the United States. Traders also noted that a softer US economic outlook could bolster expectations for a Federal Reserve rate cut in December, which in turn would reduce pressure on the BSP to maintain higher rates.

Despite the mixed yield performance along the curve, market participants broadly agree that the underlying fundamentals still favour lower yields given the environment of below-target inflation, subdued growth momentum, and a manageable bond supply calendar. One trader commented that “the balance of risks for peso government security yields is clearly skewed to the downside.”

Looking ahead, bond turnover has been somewhat lighter with investors taking smaller positions as they await clearer signals from both the Federal Reserve and the BSP about future monetary policy direction. Absent any surprising global data or sharp shifts in currency sentiment, traders expect yields to continue their downward drift.

In summary, the prospect of a further BSP rate cut in December is gaining traction amid stable inflation, downward growth revisions, and easing policy stances both domestically and abroad. This has contributed to a cautious but generally optimistic market outlook for Philippine government securities in the near term.