LOCAL currency bond issuances in the Philippines rose by an annual 10.2% at end-June, driven by the government’s retail bond offering together with strong corporate demand, even as prospects of more US rate hikes and the Duterte government borrowing more to finance its infrastructure plan have led to rising yields, the Asian Development Bank (ADB) said on Friday.

In its September Asia Bond Monitor, the Manila-based multilateral lender put the size of the Philippine bond market at P5.168 billion at end-June. Last year, that number was P4.688 billion. In the first quarter of this year, outstanding Treasury bills and bonds amounted to P4.943 billion.

Government bonds accounted for 81.5% of the local bond market, while corporate debt comprised nearly a fifth of the total issuances for the period. Government-issued bonds were valued at P4.211 billion as of end-June, 5% up from the previous quarter and 8.5% from the previous year.

“The expansion in the size of the government bond market was sustained by increased issuance, particularly the issuance of Retail Treasury Bonds (RTBs) in April,” ADB said.

“The RTB offer was met with strong demand, prompting the Bureau of the Treasury (BTr) to increase its initial offer size of PHP30 billion to accommodate investor appetite,” it added.

Corporate bonds, on the other hand, grew 2.7% to P957 billion from the previous quarter and 18.5% year on year.

“Market participants see the corporate bond market remaining vibrant even if the government shifts its project financing to appropriation from public-private partnerships,” the bank said.

“Should government spending, particularly huge infrastructure projects, gain further traction, it would spur economic activity and provide more opportunities for firms to expand,” it added.

Ayala Land, Inc., SM Prime Holdings, Inc., Metropolitan Banking & Trust Co., SM Investments Corp., and Ayala Corp. were the top 5 corporate bond issuers for the period.

“Between 1 June and 15 August, local currency (LCY) government bond yields in the Philippines rose for most tenors, particularly the 3-month, 6-month, 2-year, 5-year, 10-year, and 20-year maturities,” ADB said.

ADB said that the rise in yields reflected the market’s reaction to the looming US rate normalization, as well as the European Central Bank’s “adjusting the parameters of its policy instruments.”

The multilateral lender said there’s another factor driving Philippine bond yields up.

“With more spending in the pipeline, the government may need to borrow more to fund the gap, likely pulling up government bond yields,” it said. – Elijah Joseph C. Tubayan

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