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By Ann R. R. Gregorio, Reporter

Local bond market’s robust growth noted

Posted on November 23, 2012

THE PHILIPPINE debt market grew strongly as of end-September as the country’s strong macroeconomic fundamentals drew capital flows, sharply pulling down interest rates, the Asian Development Bank (ADB) said.

THE COUNTRY’S strong macroeconomic fundamentals have been attracting foreign capital, the Asian Development Bank noted. -- AFP
"The Philippine local currency bond market grew at a robust rate of 16.1% year-on-year as of end-September, led by both treasury and corporate bond expansion," ADB noted in the latest Asia Bond Monitor published yesterday.

The country’s improving macroeconomic fundamentals and "transparency" in government has increased investors’ confidence in the country’s assets, ADB said.

Outstanding peso-denominated bonds totaled P3.7 trillion as of September, with government-issued bonds comprising P3.3 trillion, and corporate bonds, P524 billion.

Government issuances grew by 14.7%, with the Treasury issuing more bonds than bills. Issuances by private firms, on the other hand, surged by 26.1% amid falling interest rates.

The multilateral lender pointed out that yields of short-tenored papers -- or those with a life of one year or less -- sharply declined in the third quarter, performing better than long-tenored bonds.

"Yields for tenors of one-year and below plunged between 75 basis points and 108 basis points as foreign investors sought these bills on the back of the strong peso. Government bonds with maturities of four years and above fell between one to 40 basis points during the same period," ADB said.

"The movement in the yield curve reflected the monetary easing policies implemented by the Bangko Sentral ng Pilipinas and the country’s credit upgrade from Standard & Poor’s in July and Moody’s Investors Service in October," ADB also said.

The central bank has slashed policy rates by a total of 100 basis points this year due to benign inflation and the need to buoy the domestic economy in the face of global economyic uncertainty. Its rates are now are record lows of 3.5% for overnight borrowing and 5.5% for overnight lending.

Moody’s Investors Service last month upgraded the country’s sovereign rating to Ba1, one notch below investment grade, from Ba2, aligning itself with Fitch Ratings and Standard & Poor’s Ratings Services that have given the country a BB+ grade, also a level short of investment grade.

ADB, however, warned that emerging East Asia -- which groups China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam -- faces a weak global economy amid slowing growth in the US and the euro zone.

"[T]he growth outlook for the region’s economies has also worsened with the People’s Republic of China’s growth expected to be at its lowest since the since the global financial crisis. The looming fiscal cliff in the US and unresolved debt crisis in Europe continue to weigh on investor sentiment," it added.

Amid uncertainties in the external environment, the local currency bonds of the East Asian region grew strongly, posting an 11% year-on-year rise to $6.2 trillion as of September, with investors perceiving these assets as better yielding compared to those in advanced economies.

Vietnam, Singapore, the Philippines, Malaysia and Thailand posted the highest growth rates on a year-on-year basis.

The Vietnamese market surged on the back of treasury bonds as corporate bond issuances shrank.

"In the four other markets, both the government and corporate bond sectors grew at double-digit rates on a year-on-year basis, but growth in Singapore, the Philippines and Thailand was led by their respective corporate bond markets," ADB pointed out.