‘Weak peso may erode appeal of Philippines bonds to foreign funds’

The Philippine peso has become the weakest currency in Asia, which could make the country's bonds less attractive to foreign investors, according to Manulife Investments Philippines. The volatility in the peso's value raises currency risk for offshore investors, potentially reducing the appeal of peso-denominated assets despite their higher yields, said Jean Olivia de Castro, head of fixed income at the firm.

While inflation may be affected by currency depreciation, investor confidence is equally important for bond markets, she added. The peso's decline, currently around P62 per dollar, is influenced by factors such as higher oil prices, a growing trade deficit, a strong dollar, and global risk aversion. The peso hit a record low of 62.625 against the dollar on September 8, becoming the worst-performing currency in Asia after falling more than six percent from its end-2025 level of 58.79.

A higher risk premium could lead to increased yields and borrowing costs for local bonds. The Bangko Sentral ng Pilipinas (BSP) has raised its key interest rate by 25 basis points to 5% to combat high inflation. The Monetary Board has raised rates by 75 basis points since the tightening cycle started. However, the Philippines still enjoys strong reserve buffers, a credible central bank, and relatively attractive real yields compared to regional peers, De Castro noted.

Manulife expects stabilization in oil prices, better external balances, and continued BSP credibility to restore confidence in the peso and encourage foreign investment in local bonds over the medium term.