RP bonds 2nd best performer in Asia

MANILA, Philippines - Local currency government bonds issued by the government emerged as the second best performer in the Asia Pacific region in the third quarter but warned that investors are in for a challenging market environment in the fourth quarter of the year as well as the early part of 2011, Singapore-based DBS Bank Ltd. said in a study.

DBS Bank said local currency govern-ment bonds issued by Asian countries including the Philippines posted strong gains in the third quarter of the year with Indonesia leading the pack in terms of total returns over the last three months as measured by iBoxx broad market local currency bond indices exceeding seven percent followed by the Philippines with six percent, Korea with three percent, Malaysia with two percent, and Thailand with one percent.

The investment bank reported that Indonesian bonds have provided investors with a cumulative return of 20.7 percent in the first three months of the year followed by Philippine bonds with 11.35 percent, Korea and Thailand with eight percent, Malaysia with 5.25 percent, and India with 4.5 percent. 

The study cited that US Treasuries only yielded a total return of 8.73 percent to investors from January to September this year.

DBS Bank, however, pointed out that local currency government bonds have become expensive after a strong showing this year.

It added that the bond market in many countries is not the place to be until yields rise considerably again.

“The market environment is likely to get more unfriendly and challenging for bond investors in fourth quarter of 2010 and 2011, as slower growth has now been priced in and rate hike expectations adjusted,” DBS Bank said.

The Philippines relies heavily on foreign and domestic borrowings to finance its swelling budget deficit after the government’s fiscal consolidation program was derailed by the global economic crisis that struck late 2008.

The administration of former President Arroyo adopted several fiscal reform measures aimed at accelerating the achievement of a balanced budget by 2008 or two years ahead of the original 2010 schedule under the Medium Term Philippine Development Plan (MTPDP). However, the global financial crisis in 2008 forced the government to abandon both schedules.

Fiscal managers of President Aquino led by Finance Secretary Cesar Purisima is bent on trimming the budget deficit to two percent of gross domestic product (GDP) by 2013 until the end of the term of the new government in 2016.

The country’s budget deficit swelled to a new record level of P298.5 billion or 3.9 percent of GDP last year from P68.1 billion or 1.1 percent of GDP in 2008.

The Philippines is staring at another record deficit of P325 billion or 3.9 percent this year but finance officials vowed to improve the collection efficiency of both the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).