Phl debt spreads widen

MANILA, Philippines - The cost of borrowing from abroad went up in the third quarter of 2013 on the back of perceived riskier emerging market assets, the Bangko Sentral ng Pilipinas said.

In a report titled Economic and Financial Developments, the BSP said the Emerging Markets Bond Index (EMBI) + Philippine spreads averaged 169 basis points (bps) in July to September, up from 147 bps in the second quarter.

“The country’s debt spreads widened in Q3 2013, reflecting heightened risk aversion towards EM (emerging market) debt instruments,” the BSP said.

However, it noted “favorable economic reports in the domestic front tempered widening pressures.”

Emerging markets saw heightened volatility starting May last year as investors anticipated the US Federal Reserve’s tapering of its massive stimulus program.

Such also prompted investors to repatriate their funds in emerging markets back to safe haven assets such as those in the US.

The Fed’s announcement in December that it will finally start scaling back its massive monthly bond purchases gave relief to markets.

However, more volatility is seen early this year as investors, central banks, and federal governments rebalance their portfolios.

Meanwhile, the credit default spread also widened to an average of 124 bps in the third quarter from 103 bps in the previous three months.

The BSP noted the Philippines’ CDS was lower than Indonesia’s 235 bps but was similar with Thailand’s 125 bps and Malaysia’s 124 bps.

The spreads on Philippine debt paper have been rising since the last quarter of 2012. Data from the BSP showed EMBI+ Philippine spreads tightened to an average of 122 bps in the fourth quarter of 2012 before widening to 136 bps in the first quarter of 2013.

The index further widened to an average of 147 bps in the second quarter last year, and to 169 bps in the third quarter, latest data showed.