Philippine yield curve: has the 10-year minus 2-year spread predicted slowdowns?
The Philippine 10-year minus 2-year spread is 92 basis points, below its average of 134. It inverted in only one month since 2007, and the flat stretches before 2020 and in 2023-2024 were followed by very different outcomes.
Bond markets have a popular recession signal: when short-term government bond yields rise above long-term ones, the yield curve inverts, and a downturn often follows. The signal has a strong record in the United States and a much weaker one there since 2022. The Philippine curve has its own history, and it rarely inverts.
What is the Philippine yield curve spread?
It is the 10-year government bond yield minus the 2-year government bond yield, both from ADB AsianBondsOnline daily closes (data: Bloomberg), averaged by month. A positive number means long-term borrowing costs more than short-term borrowing, which is the normal state. A negative number is an inversion.
Other markets often use the 3-month bill or the policy rate as the short end. Here the 2-year is used because it is available every month from 2006 and moves with expectations of BSP policy over the next two years.
Where is the spread now?
Philippine 10-year minus 2-year yield, September 2026 average. Sample average since March 2007: 134.3 bp
Where is the spread now?
10-year
Shared linear scale from zero. Selected entries from the table below. Its dates, units, definitions and limitations still apply.
| Month | 10-year | 2-year | Spread |
|---|---|---|---|
| September 2025 | 5.99% | 5.58% | 40.6 bp |
| December 2025 | 5.99% | 5.25% | 73.4 bp |
| March 2026 | 6.68% | 5.77% | 91.0 bp |
| June 2026 | 7.21% | 6.55% | 66.5 bp |
| September 2026 | 7.50% | 6.58% | 91.9 bp |
The spread has widened from about 40 basis points a year ago to about 92, while both yields rose. On 7 October 2026 the daily closes were 7.99% and 6.87%, a spread of about 112 basis points. Across the full sample the average is 134.3 basis points and the median 113.5, so the curve is still flatter than usual, but less flat than in 2023-2025.
Did a flat or inverted curve come before a slowdown?
There is one inversion and two longer flat stretches to test. The outcome column uses real GDP growth on the previous quarter, seasonally adjusted, computed from IMF quarterly national accounts.
| Flat or inverted period | Lowest spread | What followed |
|---|---|---|
| March-July 2019 (under 20 bp; inverted May 2019) | −1.7 bp | Q4 2019 −0.40%, then Q1 2020 −3.43% and Q2 2020 −13.95% (pandemic) |
| May-July 2023 (under 20 bp) | +0.5 bp | No negative quarter through Q1 2026; year-on-year growth slowed from 5.44% (Q2 2025) to 2.76% (Q1 2026) |
| Scattered months, December 2023 to December 2024 | +2.7 bp (December 2024) | Same as above; Q2 2026 growth of 2.3% year on year reported by PSA |
The 2019 case looks like a hit, but is not a clean one. A negative quarter did follow, and the contraction of 2020 was the deepest in the record. But that contraction came from lockdowns. The curve flattened in 2019 while inflation was falling from its 2018 peak; nothing in bond prices at the time pointed to a pandemic.
The 2023-2024 case is a partial hit. The curve stayed below 40 basis points for most of two years. No quarter contracted, but growth slowed sharply: Metrobank Research described the 2.3% year-on-year figure for Q2 2026 as the weakest outside the pandemic in 16 years.
The global financial crisis was a miss. The Philippines recorded negative quarters in Q4 2008 (−0.20%) and Q1 2009 (−2.09%), but in the two years before them the spread stayed between about 67 and 199 basis points. It never came close to flat.
The US curve was inverted for 26 months without a recession
The US 10-year minus 2-year Treasury spread (FRED T10Y2Y, monthly average) was negative from July 2022 to August 2024, 26 months in a row and the longest run since the series began in 1976. No US recession followed. That episode weakened confidence in the signal in its home market. In the Philippines, where the curve has inverted for only one month in nearly 20 years, there are too few cases to say the signal works here at all.
What does the 2-year say about the BSP?
The 2-year yield averaged 6.58% in September 2026, 158 basis points above the BSP policy rate of 5.00%.
| Measure | September 2026 |
|---|---|
| BSP target reverse repurchase rate | 5.00% |
| 2-year yield (average) | 6.58% |
| 2-year minus policy rate | +158 bp |
| 10-year minus 2-year | +91.9 bp |
When the 2-year sits well above the policy rate, markets are usually pricing further increases. This matches what analysts said after September inflation of 7.2%: BusinessWorld reported that several banks expected a 25 basis point increase at the 22 October Monetary Board meeting. In the week to 2 October, a UnionBank economist described the curve as having “a flattening bias”, with the short end absorbing most of the policy repricing. The September monthly average, by contrast, shows a wider spread than in August.
See how rates change a balance over time — the asset growth calculator compares an amount compounded at different rates against inflation.
Open the asset growth calculator →
What are the limits of this test?
There is one inversion and two flat stretches in 235 months, too few to estimate a reliable relationship. The yields are ADB AsianBondsOnline closes with Bloomberg as the data source; official BSP or Bureau of the Treasury histories were not available. GDP growth on the previous quarter is computed by this site from IMF seasonally adjusted levels and runs to Q1 2026; the seasonally adjusted figure for Q2 2026 was not yet available to us, so only the PSA year-on-year figure (2.3%) is quoted. A spread that comes before a slowdown is a timing pattern, not a cause.
Questions & answers
What is the yield curve spread?
It is the difference between a long-term and a short-term government bond yield. This page uses the 10-year minus the 2-year Philippine government bond yield. When the spread is negative the curve is said to be inverted.
Is the Philippine curve inverted now?
No. The spread averaged 91.9 basis points in September 2026 and was about 112 basis points on 7 October. It has been positive every month since June 2019.
Did an inverted curve predict a Philippine recession?
The single inverted month, May 2019, was followed by one negative quarter (Q4 2019, −0.40% on the previous quarter) and then the pandemic contraction of 2020. The pandemic was not something a bond spread could foresee, so this is not clear evidence either way.
Why compare the 2-year yield with the policy rate?
The 2-year yield reflects where markets expect short-term rates to be over the next two years. At 6.58% in September against a policy rate of 5.00%, it is consistent with expectations of further BSP increases.
Source
- ADB AsianBondsOnline - Philippines (10-year and 2-year LCY government bond yields; data: Bloomberg) ↗
- IMF - Quarterly national accounts (QNEA), Philippines ↗
- Metrobank Research - GDP update: Working through a slowing economy (7 August 2026) ↗
- FRED - 10-year Treasury minus 2-year Treasury (T10Y2Y) ↗
- BusinessWorld - Yields on government debt mixed on growing inflation risks (4 October 2026) ↗
- BusinessWorld - BSP may deliver fourth straight rate hike amid mounting inflation risks (7 October 2026) ↗
- CapsWindow - Data & methodology ↗