PHL bond market expands in Q3 even as gov’t issuances decline

THE PHILIPPINES remained to be the second fastest-growing bond in the third quarter in the emerging East Asia region, even as it expanded at a slower pace due to the government’s reduced borrowing program, an Asian Development Bank (ADB) report showed.

The October issue of ADB’s Asia Bond Monitor report released yesterday showed outstanding local currency (LCY) bonds issued by the Philippines expanded by 15.7% year-on-year to $129 billion (P6.69 trillion) in the third quarter, slower compared to the 16.8% year-on-year growth seen in the preceding quarter.

In the emerging East Asia region, the growth of the country’s bond market was only next to Indonesia which recorded a 16.8% expansion in the period and was followed by China with a 14.9% increase. It also grew faster than the 13% average for the region.

Emerging East Asia is composed of the People’s Republic of China, Hong Kong, Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Thailand and Viet Nam.

The Philippine bond market’s third quarter growth was buoyed by a 14.4% increase in government-issued bonds to $101 billion (P5.25 trillion) as well as the 20.7% jump in corporate bonds to $28 billion (P1.44 trillion) during the quarter.

On a quarterly basis, ADB said the country’s outstanding LCY bond market marginally contracted by 0.1% as of end-September from the $131 billion (P6.71 trillion) recorded at the end of June, “largely by a decline in the stock of government bonds.”

“Government bond market growth contracted 0.7% q-o-q in Q3 2019 as the government reduced its borrowing program in Q3 2019 due to underspending resulting from the delay in the approval of the 2019 national budget and increased borrowing in the first half of the year,” it said.

The Philippines was among the three markets in the region to post a slowdown in the quarter-on-quarter growth, along with Malaysia and Thailand.

Out of the government’s outstanding LCY bonds as of September, Treasury bills grew 25.9% year-on-year to $11 billion (P553 trillion), while borrowings via Treasury bonds (T-bond) inched up by 13.5% to $90 billion (P4.67 trillion).

Quarterly, government bond issues fell to P273.4 billion in the third quarter compared to the P312.4 billion issued in the previous quarter following the lower borrowing plan set by the Bureau of the Treasury (BTr).

“The BTr stated that the smaller borrowing program resulted from government underspending in the first half of 2019, given the delay in the passage of the 2019 budget. The government also had enough of a cash buffer from the large issuances conducted in the first half of 2019,” ADB said.

For the local corporate bond market, bonds issued in the third quarter were smaller at P74.4 billion compared to the P126.5 billion issued in the preceding three months.

The decline, ADB said, is attributable to the “tepid issuance” in August as well as higher borrowing costs through September due to rising interest rates.

The top three sectors in terms of their share in the corporate bond market in the third quarter were he banking sector (37.9%), the property segment (24.6%) and the holding firms (15.9%).

The report also noted that the government’s LCY bond yield curve “steepened” as yields declined at shorter-end of the curve while rates on the longer tenors increased.

“Yields for securities with tenors of less than 1 year fell 23 basis points (bp) on average… The rise in yields was most pronounced for tenors from 10 years to 25 years, which gained 31 bps on average. The spread between the 2-year and 10-year yields widened from 56 bps to 82 bps during the review period,” it said.

The rise in yields seen in early September was tapered after the central bank announced that it will further reduce the banks’ reserve requirement ratio, it said.

“Meanwhile, yields at the shorter end of the curve fell due to continued demand for shorter-dated papers amid abundant liquidity and market uncertainties,” it added. — Beatrice M. Laforga