The Philippine bond market expanded in the second quarter as the government continued to borrow funds for its coronavirus disease 2019 (COVID-19) response, the Asian Development Bank (ADB) reported on Friday.

The ADB’s latest Asia Bond Monitor report showed the local currency bond market grew by 11.5% year on year to P7.477 trillion ($150 billion) in the April to June period, while growing 5.2% quarter on quarter.

“The expansion was driven by the government segment given the contraction in the corporate segment during the quarter,” the ADB said.

As of end-June, the domestic bond market consisted of 79% government bonds and 21% corporate bonds.

Outstanding government securities issued totaled P5.904 trillion at the end of June, up 11.6% year on year and 6.8% from a quarter earlier.

“Treasury bonds drove the increase in market size as the government boosted its borrowing to fund fiscal stimulus measures to support economic recovery amid the continuing COVID-19 pandemic,” the ADB said. 

“A substantial increase in outstanding Treasury bills was seen, with nearly 50% quarter-on-quarter growth on the back of higher issuance volume during the quarter. Treasury bonds grew 2.8% quarter-on-quarter although slower compared with 6.8% quarter-on-quarter in Q1 2020, while outstanding debt from government-related entities marginally decreased due to bond maturities,” it added. 

Borrowings in the domestic market by the Bureau of the Treasury declined by 6.9% quarter-on-quarter to P668.6 billion. The ADB said the drop was caused by the government’s aggressive borrowing in the first quarter via retail Treasury bonds amounting to P310.8 billion.

“Without the RTBs, bond issuance in Q2 2020 was higher than in Q1 2020 as the government increased its borrowing plan to fund efforts to cushion the economy against the negative impact of the COVID-19 pandemic,” the ADB said. 

Outstanding debt in the corporate sector declined by 0.4% quarter on quarter to P1,573 billion from an increase of 5% last year.

However, corporate bond issuance plunged by 81.3% quarter on quarter as business activities slowed down due to stricter lockdowns and looming risks. Only three companies raised funds during the quarter.

“The weak issuance activity from the corporate sector can be attributed to gloomy economic and business prospects due to the ongoing pandemic. Amid lingering uncertainty and halted economic activities due to the strict quarantine measures in place for the entirety of Q2 2020, firms held off expansion and issuance plans to properly assess the situation, even with low interest rates and the market awash with liquidity,” the ADB said.

Across emerging East Asia, the Philippine bond market was the third-fastest growing on a quarter-on-quarter basis, behind Indonesia’s 7.8% and China’s 5.6%. The sub-region consists of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam.

The sub-region’s bond market grew 15.5% year on year to $17.2 trillion in the second quarter and expanded 5% from a quarter earlier.

The ADB said the Philippines issued the least government bonds in the second quarter after Hong Kong and Malaysia and ahead of Vietnam at the bottom.

Philippine government bonds posted the biggest drop in foreign investments due to the country’s unstable conditions and lower interest rates from the central bank.

“Investors reduced their risk exposure during the quarter, leading to continued fund outflows against the backdrop of rising uncertainty from the pandemic and a low-interest-rate environment as the Bangko Sentral ng Pilipinas (BSP) unexpectedly cut the policy rate in June by 50 basis points,” the ADB said.

Foreign holdings in government bonds from the Philippines fell to 1.9%, lower than the rates of Thailand, Vietnam and Indonesia. — KKTJ