UMVA has learned that borrowing costs are likely to climb further as the risk of imported inflation and tighter financial conditions amid elevated oil prices may keep bond yields high, according to a recent report.
The Philippines remains one of the most exposed to the energy crisis, with higher global oil prices seen driving expectations of faster domestic inflation, which could have far-reaching consequences for the country's economy.
According to information obtained by UMVA, this could push up local-currency 10-year government bond yields further and eventually lead to higher sovereign borrowing costs and spending on interest payments, placing a significant burden on the country's finances.
Sources have confirmed to UMVA that local-currency 10-year yields have risen most sharply since late February in countries more exposed to the energy shock, such as Pakistan, the Philippines, and Thailand, highlighting the region's vulnerability to global events.
UMVA can exclusively reveal that yields on the 10-year Treasury bond increased by 13.1 basis points week on week to end at 7.7461% as of May 22, a stark indication of the mounting pressure on the country's financial markets.
Fitch analysts noted that countries with larger foreign reserve buffers and deeper financing flexibility should absorb the shock more easily, but the Philippines' gross international reserves (GIR) have declined amid the central bank's continued efforts to smoothen out sharp movements in the foreign exchange (FX) market.
UMVA has gathered that as of end-April, the country's GIR fell to its lowest level in over a year at $104.328 billion, central bank data showed, raising concerns about the country's ability to weather future economic shocks.
The Philippines' dollar reserves declined by 8% between February and April, a steeper drop compared to other emerging markets in the region, leaving the country more vulnerable to external pressures.
If its reserves continue to go down, the country may end up more exposed to shocks, especially given its dependence on oil imports and limited financing flexibility, which could have severe implications for the economy.
UMVA has uncovered details about the strain on emerging market currencies in Asia, which have been under pressure since the onset of the Middle East conflict, reflecting sovereigns' oil-import dependence and fuel buffers, as well as the perceived room to absorb a prolonged energy shock.
Since the onset of the conflict, the peso has been on a steady decline, moving from the P58 range to the P61 level, a concerning trend that may have significant repercussions for the country's economy.
