Bond market expansion slows in first quarter

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THE bond market expanded in the first quarter of 2020 but at a slower rate compared to a year earlier, with both government and corporate bonds posting growth, the Asian Development Bank (ADB) said.

According to the June issue of ADB’s Asia Bond Monitor report released Thursday, peso bonds expanded 7.9% year on year to P7.106 trillion in the first three months while growing 6.9% quarter on quarter.

In both cases, growth rates were below the year-earlier rates of 17.8% year on year and 8% quarter on quarter.

Across emerging East Asia, the Philippine bond market was the second-fastest growing on a quarter-on-quarter basis, behind Vietnam’s 9.5% and ahead of China’s 4.9%. The sub-region consists of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam.

“The region’s bond market growth was tempered by the risk-off sentiment affecting emerging markets, which was brought about by the slowdown in the global economy and the onset of the coronavirus disease (COVID-19) during the quarter,” the ADB said.

The sub-region’s bond market grew 14% year on year to $16.3 trillion and expanded 4.2% from a quarter earlier.

The peso bond market consists of 77.8% government bonds and 22.2% corporate bonds.

ADB said the Philippines was among the countries that were most active in issuing government debt paper during the first quarter, alongside China, Indonesia, South Korea and Malaysia.

“(This is) due mostly to frontloading policies and increased financing needs to fund stimulus packages and recovery efforts in response to the COVID-19 pandemic,” it said.

Outstanding government securities issued as of the end of March totaled P5.526 trillion, up 6.2% year on year and 7.5% from a quarter earlier. Corresponding year-earlier growth rates were 16.2% year on year and 8.8% quarter on quarter.

The ADB noted that the Bureau of the Treasury (BTr) borrowed more in the first quarter, with a retail treasury bond issue conducted in February.

In the three months to March, the ADB said the government issued debt paper worth P718.2 billion, more than double the P272.2 billion issued a quarter earlier.

“The increased borrowing was programmed to take advantage of liquidity in the local market as a result of the reserve requirement ratio cuts in Q4 2019 by the BSP (Bangko Sentral ng Pilipinas), as well as of lower interest rates,” the ADB said.

It said the BTr can tap strong domestic demand for government debt paper especially the short-term issues as liquidity remains robust.

Corporate bond growth rates also eased in the first quarter to 14% year on year and 5% quarter on quarter. The corresponding year-earlier growth rates were 24.4% and 5.4%, respectively.

“The issuance growth came on the back of strong economic prospects prior to the outbreak of COVID-19 as corporates sought to capitalize on investor optimism by tapping the bond market,” it said. — Beatrice M. Laforga