Bonds in the Philippines are likely to face the biggest challenge in Asia should the ongoing conflict in the Middle East lead to a sustained
in oil prices. Peso-denominated debt has shown the highest sensitivity and the most consistent reaction to crude spikes in recent years, according to a Bloomberg analysis of five events since 2022. The study examined the degree to which bond yields moved outside a normal trading range in these episodes, which include the ongoing Iran conflict and the war in Ukraine.
Yields on five-year peso bonds have jumped by an average 25 basis points during the events, the analysis showed. Similar maturity yields on Chinese notes have fallen two basis points on average, making them the most resilient in the region. Rising oil prices pose a threat to many of Asia’s
. But Philippines’ consumption-driven economy is particularly
given a heavy reliance on imports, quicker transmission of fuel costs into transport and food prices, and a currency that’s trading near record lows. To make matters worse, inflation already accelerated to 2.4% in February, the
in over a year.
“Higher oil prices are a scourge for the Philippines,” said Rajeev de Mello, global macro portfolio manager at Gama Asset Management. “Higher inflation, a more hawkish BSP and a rise in global bond yields will put downward pressure on peso government bonds.”
