Local currency bond market still expanded by end-march

DESPITE foreign investors reducing their exposure in Philippine government bonds, the country’s local currency bond market still expanded by the end of March, according to the Asian Development Bank (ADB).

In its latest Asia Bond Monitor, the Manila-based multilateral development bank said the local bond market expanded 6.5 percent from the previous quarter to $201.5 billion at the end of March.

Government bonds expanded 6.5 percent from the previous quarter to $172.2 billion while corporate bond growth recovered, with the bond stock expanding 6.6 percent from the previous quarter to $29.3 billion.

“Aside from the aggressive Federal Reserve action, foreign investor sentiment soured toward Philippine government bonds because of soaring domestic inflation, a large fiscal deficit and uncertainty stemming from the pending change in government administration,” the ADB report stated.

“Growth in the stock of Bangko Sentral ng Pilipinas [BSP] securities augmented overall government bond market growth in first quarter 2022, posting an expansion of 57.7 percent q-o-q [quarter on quarter]. Growth in the stock of Treasury bonds also contributed to the growth,” the report, however, stated.

The report stated that the stock of Treasury bills contracted in the first quarter of 2022 but corporate debt issuance jumped 160.8 percent quarter-on-quarter in the first quarter of 2022.

“[This was] amid the reopening of the Philippine economy—most business activities resumed after prolonged restrictions—and as corporate issuers locked in prevailing lower borrowing rates,” the report stated.

The ADB said growth in emerging East Asia’s local currency bond market slowed to 3.1 percent in the first three months of the year amid weakened financial conditions and global economic headwinds.

Issuance fell 6.5 percent from the previous quarter, while rising inf lationary pressure and tightening financial conditions pushed up bond yields in economies in the region, according to the latest issue of Asia Bond Monitor, released last June 27.

Financial conditions in emerging East Asia weakened as indicated by falling stock prices, portfolio outflows and the weakening of currencies against the US dollar.

Monetary tightening

THE ADB said the trend was largely driven by monetary tightening by central banks in major advanced economies and several regional economies and by heightened risks to economic outlooks.

The report also stated that these risks included continued inflation, rising commodity prices, slowerthan-expected growth in the People’s Republic of China (PRC) and largerthan-expected impacts of the Russian invasion of Ukraine.

“Monetary stances in emerging East Asia remain largely accommodative, but persistent inflationary pressure and accelerated monetary tightening by the US Federal Reserve could lead to further monetary tightening in the region,” ADB Chief Economist Albert Park said. “The region’s economies will continue to recover, but growth could moderate this year.”

The region’s local currency bond market reached $23.5 trillion at the end of March. Bonds outstanding in economies belonging to the Association of Southeast Asian Nations (Asean) totaled $2 trillion, accounting for 8.6 percent of emerging East Asia’s total bond stock.

Government bonds outstanding grew to $14.7 trillion. Issuance contracted 2.2 percent from the previous quarter, as authorities tried to balance economic recovery efforts with fiscal sustainability.

Issuance of corporate bonds declined by 12.1 percent from previous quarter amid tighter financial conditions and economic uncertainties.

Nevertheless, sustainable bonds in the Asean region plus the PRC, Hong Kong, Japan and the Republic of Korea continued to grow solidly, expanding 9.7 percent to $478.7 billion.