2021 recovery crucial for banks — S&P

November 18, 2020 | 12:34 am

S&P Global Ratings expects the Philippine economy to shrink by 9.5% this year, before growing by 9.6% in 2021. — PHILIPPINE STAR/MIGUEL ANTONIO N. DE GUZMAN

A DEEPER-THAN-EXPECTED recession in the Philippines will increase the downside risks for the banking industry, S&P Global Ratings said.

“This year’s recession is likely to impair the debt-servicing ability of consumers, small businesses, and leveraged companies. The extent of the impact on banks depends on the economic recovery and stabilization of credit conditions in 2021,” S&P analyst Nikita Anand said in a note on Tuesday.

Ms. Anand said Philippine banks are facing a negative economic risk trend, as the economy remained in a recession in the third quarter. Gross domestic product (GDP) shrank by 11.5% in the July to September period, slightly easing from the record 16.9% decline in the second quarter as lockdown restrictions gradually loosened amid the coronavirus disease 2019 (COVID-19) pandemic.

S&P expects the Philippine economy to contract by 9.5% this year, before growing by 9.6% in 2021.

“We expect operating conditions for banks and borrowers in the Philippines to improve only gradually, on the back of 9.6% growth in the economy in 2021. These projections assume an eventual flattening of the COVID-19 curve,” Ms. Anand said.

The government expects the economy to bounce back to 6.5-7.5% growth in 2021.

Ms. Anand said local lenders can absorb credit losses since its “good capital position (15% Tier-1 ratio) and more than 100% provisioning of NPLs provide a cushion against challenging operating conditions.”

But a longer recession than the S&P forecast “could result in substantially higher credit losses for Philippine banks,” Ms. Anand said.

“We expect the banking sector’s credit costs to stay elevated at 1.5%-2.0% of gross loans over 2020 and 2021 compared with the five-year average of 0.4%. The consumer, micro, and SME (small and medium enterprises) portfolios will contribute to higher NPLs (nonperforming loan) in the coming quarters,” she said.

“Large conglomerates, with their strong business profiles by domestic standards and good access to liquidity, are better placed to weather the storm. If the recession is longer or deeper than our forecast, this could set off sharper asset quality deterioration for banks, due to potential stress in large corporate books.”

As of end-September, the gross NPL ratio of the banking system hit 3.4%, as soured loans climbed 60% year on year to P364.672 billion.

The central bank expects the NPL ratio to reach 4.6% by end-2020. It reached 17.6% in 2002, the aftermath of the Asian Financial Crisis.

Ms. Anand also noted regulatory forbearance will only delay the true recognition of NPLs. Republic Act No. 1494 or Bayanihan to Recover as One Act provided for a one-time 60-day debt payment moratorium.

“The effect on individual banks in the coming quarters will be uneven, hinging on their exposure to vulnerable segments and their accounting and provisioning standards,” she said.

Banks’ recovery to pre-COVID-19 levels will likely stretch beyond 2022, Ms. Anand said. — Luz Wendy T. Noble

Creation of a child trust fund proposed

November 18, 2020 | 12:33 am

THE Capital Market Development Council (CMDC) is studying the possibility of setting up the country’s Child Trust Fund (CTF), which would aim to encourage low-income families to save for their children’s college education.

In a statement on Tuesday, the Finance department said the national and local governments would both contribute to the proposed CTF. Financial institutions will be tasked to manage these funds.

National Treasurer Rosalia V. de Leon, who is also part of CMDC, said the model will be based on CTFs in the United Kingdom and Singapore.

“The fund can also either be managed by the government and a part of it can also be cut out to be managed by the private sector. We are still on an exploratory stage and we would like to further do a more detailed or granular study on the CTF and to sell it to the Council in the coming meetings,” Ms. De Leon said in the statement.

Proceeds from the trust fund can be used to augment the remaining educational expenses of students such as daily allowance, transportation costs, lodging and other fees, since education from kindergarten to college in public schools and state universities are free of tuition fees.

In a separate text message on Tuesday, Ms. De Leon said the proposal is still at the early stage of development and there is no target schedule yet on when the proposed CTF will be launched.

“No launch date since still on a very preliminary stage looking at various models that are appropriate and affordable for us,” she said.

In the UK, Ms. De Leon said over six million tax-free trust fund accounts were created to save up for future educational expenses of children born between Sept. 1, 2002 and Jan. 2, 2011.

The UK government allotted an initial seed capital of £250-500 (P16,000-P32,000) per child, with those in the poorer households receiving bigger amounts. The funds can be withdrawn once students reach 18 years old.

The CTF was scrapped by the UK government in 2011.

Under Singapore’s Education Endowment or Edusave Scheme, the state gives 4,000 Singapore dollars to each recipient child seven years old and above, to cover 10 years of schooling in primary and secondary education.

Singapore’s system does not have withdrawal limitations so the students can take out the proceeds even prior to the maturity provided that these will be used for educational expenses. The accounts are then closed once beneficiaries turn 16 years old and the unused funds will then be transferred to other accounts.

Consuelo D. Garcia, the liaison director for capital markets of Financial Executives Institute of the Philippines (FINEX), said the proposed trust fund can revive the “savings culture” in the country, especially those in poor families.

Ms. Garcia said more than five years ago, the country ranked second among Asian countries in terms of savings as a percentage of the total economic output, based on a survey by the Asian Development Bank.

The Philippines has since then lagged behind peers and now only maintains combined savings worth 15% of gross domestic product (GDP), which is roughly half of Vietnam’s 25% savings-to-GDP ratio and Indonesia’s 35%.

“It is actually to be the missing link to what we have right now. The PERA (Personal Equity and Retirement Account) is for the working class. This one is for the young people. The baby boomers already got left behind so I think we could have this as a starting point,” she was quoted as saying.

Ms. Garcia said the trust fund can also boost the economy as the pooled savings will be invested professionally to support programs such as the government’s big-ticket infrastructure projects.

Aside from promoting savings, the proposed trust fund for children could also help diversify and deepen the capital market since it serves as another instrument to boost resources available in the market, said University of Asia and the Pacific (UA&P) School of Economics Senior Economist Cid L. Terosa

“It will be beneficial for students because the Child Trust Fund is a lifeline for low-income families to improve their standard of living and overall material welfare through education,” Mr. Terosa said in an e-mail on Tuesday.

“The key to a successful Child Trust Fund program is a well-designed partnership between the government and the private sector, particularly financial institutions,” he added.

The financial institutions play a key role in designing and marketing the CTF, said Mr. Terosa, while both the public and private sectors are needed to make sure that consumers are protected and the funds will remain a viable and attractive savings and investment option. — Beatrice M. Laforga

Local digital economy to hit $28B by 2025 — study

November 18, 2020 | 12:32 am

THE Philippine digital economy’s gross merchandise value (GMV) is seen to hit $28 billion in 2025, accelerating to a 30% compound annual growth rate (CAGR), driven by the growth in new digital consumers, the latest e-Conomy Southeast Asia report by Bain & Company, Google, and Temasek said.

The digital economy’s GMV is expected to grow at a CAGR of 6% to $7.5 billion this year, which was described as “resilient.”

The e-Conomy Southeast Asia report made use of data from consumer and merchant surveys, corroborated with market participant interviews and databases. It focused on six markets, namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

As the pandemic helped drive Filipino consumers’ shift to digital services, the report showed 37% of new digital consumers plan to continue using internet economy services even after the pandemic. Among the new digital consumers, 95% said they will continue to use at least one digital service after the health crisis.

The study also found that the average hours spent by Filipinos online per day had increased to 5.2 hours during the strict lockdown, from four hours previously. This declined to 4.9 hours after the lockdown eased.

“In the Philippines, given the extensive COVID-19 (coronavirus disease 2019) lockdown periods, users went online searching for solutions to their sudden, new challenges,” the study noted.

Growth in e-commerce and online media offset the decline in transport, food, and travel sectors this year. The e-commerce sector’s value is projected to increase by a CAGR of 55% to $4 billion this year, and by 31% to $15 billion in 2025.

The online media sector’s value is seen to rise by a CAGR of 27% to $2.1 billion in 2020, and hitting $5 billion in 2025.

While travel and transport sectors grew by less than a percent this year, both are expected to bounce back by 2025.

On the other hand, the value of investments in the Philippines’ internet sector rose 34.13% to $169 million in the first half of 2020 with a total of 22 investment deals, as compared with the $126 million posted in the same period a year ago with 32 investment deals.

“Deal activity across the region continued to grow unabated in the first half 2020. Investors are remaining cautiously optimistic and are doing fewer deals at more attractive valuations, in hope for higher returns in the long run. Where the goal of years prior has been ‘blitzscaling,’ investors are now looking for sustainable, profitable growth,” the study said.

The study identified six major barriers to growth: internet access, funding, consumer trust, payments, logistics and talent. This year, significant progress has been seen, particularly in payments and consumer trust.

Alessandro Cannarsi, co-author of the report and Lead Partner in Private Equity for Bain & Company Southeast Asia, offered three ways for investors to be able to tap into the region’s “burgeoning digital economy.”

Investors can “recalibrate towards sustainable and profitable growth” by refocusing on companies that progress towards “profitable organic growth rather than metrics driven by subsidization,” he said.

Investors can also differentiate between essential versus non-essential tech. “Focus on startups that drive improvements in efficiency and access to essential goods and services,” Mr. Cannarsi said. — Arjay L. Balinbin

Philippine internet economy to reach $28 billion by 2025 — study

November 18, 2020 | 12:32 am

THE Philippine digital economy’s gross merchandise value (GMV) is seen to hit $28 billion in 2025, accelerating to a 30% compound annual growth rate (CAGR), driven by the growth in new digital consumers, the latest e-Conomy Southeast Asia report by Bain & Company, Google, and Temasek said. Read the full story.

PHL may attract oil traders after loss of refining sector

November 18, 2020 | 12:31 am

PILIPINAS SHELL Petroleum Corp. shut down its refinery in Tabangao, Batangas this year. — PHILIPPINE STAR/MICHAEL VARCAS

MORE oil traders might see the Philippine downstream market attractive with the impending loss of its oil refining industry, according to an oil executive.

The coronavirus pandemic exacerbated the already challenging fuel retail competition in the Philippines, leading its last standing refiner to consider shutting down “very soon.”

Petron Corp., the country’s remaining petroleum refiner, recently disclosed that it will shut down its 180,000 barrel-per-day (bpd) refinery in Bataan “very soon” to prevent further losses due to poor refining margins and uneven playing field, according to its president, Ramon S. Ang.

Losing the domestic refinery may attract oil traders to enter the Philippine market, said Raymond T. Zorrilla, senior vice-president for external affairs of Phoenix Petroleum Philippines, Inc.

“If there is no refinery in the [Philippines], it might be very attractive for traders to target [the country] and this could impact the importers too — [they could be] in direct competition with other importers,” he said in a message.

A consumer group said earlier that the Philippines would be completely “at the mercy” of oil traders and suppliers without its refining sector.

“The supply and prices will make the country dependent [on] foreign supply and prices,” Victorio A. Dimagiba, president of Laban Konsyumer.

As the Philippines becomes more dependent on fuel imports, it will also be tied to fluctuations of supplies and prices in the global oil market, Fitch Solutions said in a recent research note.

Still, there will be no adverse impact on fuel security if Petron would turn to full importation like its rival Pilipinas Shell Petroleum Corp., according to Rino E. Abad, director of the Department of Energy’s (DoE) Oil Industry Management Bureau.

Pilipinas Shell, owner of a 110,000-bpd refinery in Tabangao, Batangas which permanently closed in August, will convert the facility into an import-receiving site.

“Finished products are abundant almost all over the world. Importation within Asia-Pacific is not an issue,” Eastern Petroleum Chairman Fernando L. Martinez said in a mobile message. He also said that the loss of domestic refineries won’t impact the country’s fuel supplies.

STOCKPILING
To allay fuel insecurity from uncertainties in the global oil market, the Philippine government should invest in strategic oil stockpiling and encourage more investments in local gas and oil exploration.

“The government should invest in strategic stockpiling of products or encourage investment in oil exploration for our own needs,” Mr. Zorrilla said. “That [will make] us independent [from] global supply disruption.”

State-led Philippine National Oil Co. in a recent Senate hearing said it has deferred to next year the conduct of a feasibility study on the formation of a strategic petroleum reserve program, which the DoE says will help secure the country’s fuel supply in instances of volatility and disruptions.

But Petron’s Mr. Ang said that without local refineries, a stockpiling program won’t be possible. He claimed that the government cannot sell products that are stored for months since their quality will deteriorate unless reprocessed in a refining facility.

“You can only stockpile kung may refinery ka kasi pwede mong i-reprocess ang gasoline mo, diesel,” he said. (You can only stockpile if you have a refinery that will allow the reprocessing of gasoline and diesel imports.)

Ideally, the country should retain its refining sector for the sake of supply security, “as petroleum in its crude state can be stored for a longer period [versus] finished product,” Mr. Martinez said.

The country must maintain at least 150,000 bpd of petroleum coming from refiners, or 30% of the country’s total fuel demand, he added.

Mr. Martinez said he expects a better refining environment in the country in the future.

“It can just be a temporary shutdown until the economics of refining is achieved, which may also happen In the future, in which case the owners may decide to revive it,” he said. — Adam J. Ang

Pandemic brings more job hunters, fewer opportunities, says JobStreet

November 18, 2020 | 12:09 am

By Denise A. Valdez, Senior Reporter

MORE Filipinos are looking for jobs online during the coronavirus pandemic, but companies are offering fewer opportunities because of uncertainties brought by the crisis, online job hunt platform JobStreet found in its data.

In a media briefing on Tuesday, JobStreet said the job ads on its platform dropped by more than half in the past months of the quarantine. From 100,000 jobs on its website every day before the pandemic, the figures hit as low as 30,000 jobs during the height of the lockdown.

On the other hand, applications for job listings have grown by about five times, from an average of 50 seekers per ad pre-pandemic to 300-400 applications per ad at present.

“We have very little number of jobs compared to pre-pandemic, and more people looking to augment or looking for new jobs,” Philip A. Gioca, country manager for JobStreet in the Philippines, said in the briefing.

“In the past, before the pandemic, we had a very good number of jobs that are available in the market. We were able to get those from our hirer partners because they were expanding and the economy was doing so well. Unfortunately, when the pandemic came, they had to do a lot of things,” he added.

A primary concern during the pandemic is how businesses can keep operating while the economy has fallen into a recession. To many, this means having to cut salaries or reduce manpower, but in worst case scenarios, closing shops, Mr. Gioca said.

The Philippine government reported a 10% unemployment rate in July 2020, lower than April’s record-high 17.7%, but nearly double July 2019’s 5.4%. That means there are about 4.57 million unemployed Filipinos during the period, 88% higher than 2.44 million in July 2019.

“Given those situations, people would look for another job to augment their financial situations. Good thing that we were able to encourage our partners to actually give more jobs for part-timers. Second, they opened up not only for those with experiences, but also fresh graduates… These, in a way, augmented those who were displaced,” Mr. Gioca said.

He also noted the salary for job listings declined between 20% and 50%, but people were willing to agree to it rather than have no job at all. “The promise of management is that it will go back to the normal rate when operations stabilize,” Mr. Gioca said.

But on the bright side, job listings have improved to an average of 44,000 ads a day over the past three months. It is still lower than pre-pandemic’s 100,000, but better than 30,000 in the early months of quarantine.

“It signals to us that companies are expanding and are trying to open up. Hopefully, it gets sustained. That’s why in the recent survey that we did, we see hirers remain very positive in the next six months,” Mr. Gioca said.

JobStreet currently has about 27,000 partner hirers on its platform. It recently launched a new mobile application to accommodate more job seekers and hirers.

The top jobs on JobStreet at present are in the fields of education, customer service, clerical and administrative support, security and protection, information technology, healthcare, finance and general accounting, general work, computer networking, and sales.

DMCI Homes eyes P13.9B worth of project completions

November 18, 2020 | 12:08 am

DMCI PROJECT DEVELOPERS, Inc. (DMCI Homes), the residential arm of listed DMCI Holdings, Inc., is targeting to complete 10 projects before the year ends.

In a disclosure by its parent to the exchange on Tuesday, DMCI Homes said it is expecting to finish P13.9 billion worth of projects in the remaining period of 2020, comprising 4,088 residential units spread across 10 buildings.

These projects belong to DMCI Homes’ Mulberry Place, Lumiere Residences, Calathea Place, Sheridan Towers, Alea Residences, and Oak Harbor Residences.

Of the combined 4,088 residential units, some 3,500 have already been sold out.

“The pandemic really battered our productivity. Our projects got delayed by one to three months because of the 76-day work stoppage in the first semester,” DMCI Homes President Alfredo R. Austria said in the statement.

“Since we follow the percentage-of-completion method for revenue recognition, our booked revenues contracted on lower construction accomplishments,” he added.

In the nine months through September, DMCI Homes contributed a net income of P472 million to its parent DMCI Holdings, down about 74% from P1.8 billion in the same period a year ago.

Its revenues slid 36% to P9.5 billion due to delayed project completions following restrictions on construction activity.

To catch up, the company is implementing “modularization,” which is a method that allows building components to be pre-made then assembled for construction.

It is also providing onsite barracks for some 4,941 construction workers to reduce tardiness and the likelihood of absences while transportation facilities are limited.

As of September, DMCI Holdings booked an attributable net income of P3.91 billion, slumping 58% from the same nine-month period in 2019. Aside from its residential business, the company also has interests in mining, construction, water and power.

Shares in DMCI Holdings closed at P5.41 each on Tuesday, inching up one centavo or 0.19% from the last session. — Denise A. Valdez

‘Good start’ for imported cars in fourth quarter after 16% slump in sales

November 18, 2020 | 12:07 am

IMPORTED car sales declined by 16% in October, while the industry continues to look to more growth towards the end of the year.

In a report released on Tuesday, the Association of Vehicle Importers and Distributors, Inc. (AVID) said the industry’s 21 member companies and 26 global brands sold 6,120 vehicles in October. Previously released data said the industry sold 7,320 in the same month last year.

In the 10 months to October, sales plummeted almost 43% to 40,993 vehicles compared with 71,362 in the same period last year.

But the industry indicated some month-on-month recovery, growing nine percent in October from 5,594 units in September.

“We are off to a good start in the last quarter of the year and we aim to continue this revival,” AVID President Ma. Fe Perez-Agudo said.

“Businesses are reopening and travel and tourism are resuming. These activities require mobility and a strong and healthy auto industry will set the course for economic recovery.”

AVID sales had dropped by more than 50% in the first half from the same period a year earlier after dealerships closed during the strictest version of the lockdown. September usually starts off an upward trend in automotive sales due to the upcoming holiday season.

As of October, passenger car sales plummeted 46% to 13,523 vehicles. The bulk of the vehicles during the 10-month period were sold by Hyundai Asia Resources, Inc. with 7,177 units.

Light commercial vehicle sales fell 40.1% to 27,209 units, led by the 10,619 vehicles sold by Ford Group Philippines, Inc.

Commercial vehicle sales dropped by 64% to the 261 units sold by Hyundai.

Ms. Agudo said that the industry overhauled its sales strategies during the pandemic.

“So now you can buy a car online, have it delivered to you without face-to-face contact, and do contactless pickups and drop-offs at service locations for your After Sales needs,” she said. — Jenina P. Ibañez

Jollibee opens new store in Abu Dhabi

November 18, 2020 | 12:06 am

JOLLIBEE Foods Corp. (JFC) continues to expand its overseas footprint with the opening of a new store in Abu Dhabi.

In a statement on Monday, the fast food chain operator said it recently began operations at its 48^th store in the United Arab Emirates. It is located on Hamdan Street, one of the busiest streets in Abu Dhabi.

“We are truly grateful for the constant support of our customers in the Middle East… We are excited to serve more of our fellow kababayans and local customers as we sustain our growth and expansion in the Middle East,” Dennis Flores, JFC president for Europe, Middle East, Asia, and Australia, said in the statement.

JFC said the store already exceeded sales targets by more than 40% as early as its first three days of operations.

“While we continue to have the support of Filipinos in the Middle East, we are also increasingly seeing more locals and migrants of other nationalities coming to our stores, and this shows that we are gaining traction amongst the mainstream market thus further increasing our customer base,” Mr. Flores said.

Jollibee currently has stores across United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman, boosting its global footprint of more than 1,400 stores.

In a statement last week, JFC said it opened 180 new stores in the nine months through September, of which 132 are located overseas.

The company posted an attributable net loss of P13.54 billion during the period, reversing last year’s profit of P4.18 billion, as sales remain slow due to coronavirus-related lockdowns across the world.

JFC shares at the stock exchange picked up P6.30 or 3.31% to close at P196.50 apiece on Tuesday. — Denise A. Valdez

Macquarie allots P43M for women entrepreneurs

November 18, 2020 | 12:05 am

AUSTRALIA’S Macquarie Group Foundation is investing P43 million for women-led small and medium enterprises in the Philippines as a recovery tool amid the health crisis.

Launched in a media event on Tuesday, the effort is part of the Australian government’s “Investing in Women” initiative.

This project, Australian Ambassador to the Philippines Steven J. Robinson said, would create 200 or more jobs in the country over the next 18 months.

“By putting money into this—because women’s businesses are generally so productive, we hope to see something like a 5 to 15% return on the investment that is being made that enables further ongoing investments, so it’s self-feeding,” he said.

The public-private partnership is working with two local investing partners: the Foundation for a Sustainable Society Incorporated (FSSI) and InBestCap Ventures (InBest).

The investing partners will customize their support according to the growth plans of each business, which may come in the form of loans, equity, and technical support.

The Australian government’s investing in women initiative focuses on economic growth through women’s empowerment in Southeast Asia, including the Philippines, Indonesia, Vietnam, and Myanmar. They work on workplace gender equality, investment for women’s small and medium enterprises, and influencing attitudes towards women at work.

Macquarie Group Foundation is the philanthropic arm of the Macquarie Group, a multinational independent investment bank and financial services company. — Jenina P. Ibañez

Apex Mining net income grows on higher revenues, gold prices

November 18, 2020 | 12:04 am

Apex Mining Co.’s attributable net income surged nearly five times to P679.56 million in the third quarter due to higher revenues and better gold prices, the listed mining company said in a stock exchange disclosure on Tuesday.

Its three-month income attributable to the parent firm equity holder compares with P148.94 million posted last year.

Revenues for the quarter also rose 102.3% to P2.59 billion, against P1.28 billion a year ago.

For the nine-month period, Apex Mining’s attributable net income rose to P991.68 million, or more than four times the P227.54 million registered a year ago.

The company claimed that its nine-month net income is the highest in its history.

Further, the company’s revenues from January to September also climbed 26.7% to P4.60 billion, versus the P3.63 billion it posted a year ago.

Apex Mining President and Chief Executive Officer Luis R. Sarmiento credited the resilience of the company’s team in its mine sites for the positive financial performance during the quarter amid the coronavirus disease 2019 (COVID-19) pandemic.

“Our priority is still the health and safety of our people. After all, a healthy workforce is what drives a mine to operate efficiently and profitably,” Mr. Sarmiento was quoted as saying.

Apex Mining has no recorded COVID-19 cases in its Maco mining site in Davao de Oro, it said.

The company said the averaged realized gold price during the quarter rose to $1,902 per ounce from $1,472 while silver also improved to $24 per ounce compared with $17.

Gold and silver sold during the quarter climbed 66% and 51% to 26,031 ounces and 140,240 ounces, respectively.

“Production from the mine, however, faces a challenge from the imposition of restrictions in the movement of supplies and manpower by the national and local governments to minimize the further spread of COVID-19,” the company said.

“Developments are still being awaited over the Sampaguita gas field offshore northwest of Palawan covered by Service Contract 72 where Monte Oro Resources & Energy, Inc. (MORE), another wholly-owned subsidiary, holds a 30% participating interest,” it added.

On Tuesday, shares in Apex Mining rose 0.52% or one centavo to close at P1.95 per piece. — Revin Mikhael D. Ochave

Gov’t fully awards 10-year bonds at higher rate

November 18, 2020 | 12:03 am

THE GOVERNMENT made a full award of the reissued 10-year Treasury bonds (T-bonds) it offered on Tuesday even as investors asked for higher returns amid a projected uptick in inflation and an uncertain economic outlook.

The Bureau of the Treasury (BTr) borrowed P30 billion as planned via the 10-year bonds auctioned off on Tuesday as the offer was more than twice oversubscribed, with tenders totaling P65.997 billion.

The debt papers, which have a remaining life of four years and nine months and a coupon rate of 3.625%, fetched an average rate of 2.9% on Tuesday, rising by 11.9 basis points from the 2.782% quoted in the Oct. 20 auction.

At the secondary market on Tuesday, the five-year T-bonds — the tenor closest to the remaining life of the 10-year bonds on offer — were quoted at 2.745% at the secondary market.

Sought for comment, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said investors asked for higher yields due to expectations of faster inflation and with the economic landscape still cloudy amid the coronavirus pandemic.

“Bond yields moved north with investors asking for higher yields against a backdrop of a potential uptick in domestic inflation and with global yields also inching higher on positive developments on the vaccine front,” Mr. Mapa said in an e-mail.

He added the higher yield reflected high liquidity among investors and worries about the country’s long-term economic growth prospects.

“Despite the dampened demand for this segment of the yield curve, the auction still managed to draw twice the award size, a testament as to how overly liquid the market is at the moment. Liquidity continues to build up with BSP (Bangko Sentral ng Pilipinas) support, with investors not confident enough to bet on anything else given the souring growth outlook,” Mr. Mapa said.

“Overall, liquidity is still there to support these auctions. But expect investors to be more defensive,” a trader said in a Viber message.

Inflation rose to its fastest pace in three months in October, the government reported earlier this month.

Preliminary data from the Philippine Statistics Authority (PSA) showed headline inflation at 2.5% in October, picking up from the 2.3% pace the month before.

The October inflation result marked the fastest pace in three months or since the 2.7% reading in July 2020.

Year to date, inflation settled at 2.5%, still within the BSP’s 2-4% target this year, but above its 2.3% forecast for the entire year.

Meanwhile, the Philippine economy continued to shrink for a third straight quarter, although at a slower pace compared with the previous three-month period, as lockdown restrictions were further loosened amid the coronavirus pandemic.

The economy remained in recession as gross domestic product (GDP) contracted by 11.5% in the third quarter after the 16.9% plunge in the second quarter, the PSA reported last week. GDP grew by 6.3% in the third quarter of 2019.

Year to date, Philippine GDP shrank by 10%. The government expects the economy to contract between 4.5%-6.6% this year.

The government plans to borrow P140 billion from the domestic market this month: P80 billion in weekly Treasury bill auctions and P60 billion in fortnightly T-bond auctions.

It is also offering another tranche of Premyo bonds to raise at least P3 billion. The offer period started on Nov. 11 and is set to run until Dec. 18.

Premyo bonds are part of the government’s bid to attract more small investors to invest in government securities. Last year, the BTr raised P4.961 billion from the sale of one-year peso-denominated Premyo bonds, up from its initial offer of P3 billion.

The government wants to raise around P3 trillion this year from local and foreign lenders to help fund its budget deficit, which is expected to hit 9.6% of the country’s gross domestic product. — KKTJ