PHL bond market’s growth slows in Q3
THE LOCAL bond market grew at a slower pace in the third quarter as yields spiked due to concerns over elevated inflation and expectations of further monetary policy tightening here and in the United States, the Asian Development Bank (ADB) said.
In its latest Asia Bond Monitor report, the multilateral lender said the peso-denominated bond market grew 0.9% quarter-on-quarter in September, slower than the 2.6% increase in the April to June period.
Outstanding local currency debt papers amounted to P5.792 trillion ($107 billion) as of end-September, 11.2% higher from the P5.21 trillion ($102 billion) logged in the same quarter a year ago.
Broken down, the bulk or nearly 80% of the amount were borrowed by the government totalling P4.593 trillion, while corporate bonds stood at P1.198 trillion.
State borrowings grew marginally by 0.04% from the previous quarter, supported by the 15.3% quarter-onquarter growth in Treasury bills (T-bill) issuances as the Bureau of the Treasury (BTr) awarded most of the short-dated papers in its weekly auctions.
However, this was partially offset by the 1.2% decline in Treasury bonds (T-bond) due to maturing seven-year papers and very few successful bond offerings.
During the period, the government has issued P215.8 billion, down 42.6% from P376.2 billion tallied in the second quarter due to a high base from the issuance of retail Treasury bonds in June, as well as a number of unsuccessful government security auctions last quarter.
Meanwhile, peso-denominated corporate papers grew 4.3% in the third quarter from the April-June period, led by the banking sector with P342.5 billion, accounting for 28.6% of the total.
This was followed by property companies with P340.1 billion or 28.4%, and holding firms with P257.6 billion or 21.5% of the total.
According to the report, yields on Philippine local currency bonds of all tenors jumped an average of 189 basis points (bp) between Aug. 31 and Oct. 15.
The jump in interest rates, ADB said, was spurred by “concerns over high inflation and expectations of additional policy rate hikes before the end of the year from both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.”
“Given these expectations, investors preferred short-term tenors over longterm tenors,” the lender said, adding that this led to frequent rejections made by the BTr during bond auctions as market players sought for rates higher than expected.
Inflation continued to soar in the third quarter, prompting the BSP to revise its full-year inflation forecast during its September meeting to 4.9% from the previous 4.5%.
During the same meeting, the central bank increased its benchmark rates by another 50 bps to arrest inflation expectations.
The monetary authority has tightened its policy rates by a cumulative 175 bps since May following its 25-bp hike last week.
The Philippines remained as the second-smallest bond market across emerging East Asia only next to Vietnam’s $53-billion debt burden. In contrast, the biggest issuers as of September were China ($9.195 trillion), South Korea ($2.005 trillion), and Thailand ($377 billion).
Meanwhile, the peso bond market took a modest 34.6% share of gross domestic product, compared with South Korea’s 127%, Malaysia’s 96.7% and Singapore’s 86.7%.