MANILA, Philippines - Yields on government bonds will continue to ease albeit at a slower pace, a joint research by First Metro Investment Corp. and University of Asia and the Pacific said.
Based on the latest issue of their joint publication “The Market Callâ€, FMIC-UAP sees a drop of around 50 to 60 basis points.
FMIC-UAP expects yields declining in the first quarter with a little recovery seen in the second and third quarters and again reverting to a downward movement in the last quarter of the year.
“Since short-term Treasury-bills are already very low, action will likely occur in the longer end of the curve.
FMIC-UAP said the decline in yields will likely result in less supply of government papers due to the lower deficit and borrowing requirements of the government.
With supply constraints, there will likely be higher volume of trading, which could result in the Philippines regaining the number two if not top spot in Asia in terms of turnover ratio.
“This could mean more trading income for some banks that are able to time well their entry and exit in the market,†FMIC-UAP said.
In terms of government bonds turnover ratio, China regained the number one slot in 2012, outpacing Thailand. The Philippines dropped to third place and tied with Malaysia.
The Philippine bond market posted one of the fastest growth rates in East Asia as economic problems in Europe and the US prompted investors to seek higher yields in the region.
With the single-borrower limits being already exceeded and the central bank clamping down on the less regulated long-term notes issuance, FMIC-UAP expects a surge in corporate bond issuances.
As for ROP bonds, FMIC-UAP doesn’t expect much gains this year, saying the market has already priced in the credit rating upgrade, which the country is optimistic of achieving in the second semester.
Bond spreads have been lower than investment grade sovereign bonds.