Philippines bond yields seen to rise

MANILA, Philippines —  The ASEAN Macroeconomic Research Office (AMRO) said yields of bonds issued by the Philippine government are expected to rise as investors position ahead of the impending increase in supply.

In its latest market insights titled, “Philippine bonds: The auction glitch,” the regional think tank said bond yields would rise as investors position themselves before the government returns to the offshore debt market for additional funds to fight the COVID-19 pandemic.

“A risk worth flagging is the widening fiscal deficit and a sizeable issuance plan for 2021. Bond yields may rise as investors position themselves ahead of the increase in supply,” AMRO said.

The Philippines continues to borrow more from foreign and domestic creditors as it spends more than the revenues it generates.

From January to July this year, latest data from the Bureau of the Treasury (BTr) showed the country’s budget deficit swelled nearly 500 percent to P700.6 billion from P117.9 billion in the same period last year.

Due to the global health crisis, the national government disbursed more funds for rehabilitation and recovery measures while the economic fallout brought about by containment measures translated to a sharp decline in revenues.

Revenues dropped 6.8 percent to P1.69 trillion from January to July compared to P1.81 trillion in the same period last year, while expenditures jumped by 23.8 percent to P2.39 trillion from P1.93 trillion.

The government sees its budget shortfall swelling to P1.82 trillion or 9.6 percent of gross domestic product (GDP) this year before narrowing to P1.75 trillion or 8.5 percent of GDP next year and P1.64 trillion or 7.2 percent of GDP in 2022.

The Department of Budget and Management (DBM) sees the government’s debt stock rising to P10.2 trillion in end-2020 and to about P12 trillion in end-2021 from P7.7 trillion last year as the country continues to ramp up its borrowings amid the COVID-19 pandemic.

The think tank said the Treasury rejected all bids for the 20-year bonds last Aug. 25 as bids were much higher than the secondary market levels due to technical factors that were specific to the bond and not an indication of investor sentiment toward the broader Philippine sovereign bond market.

It added there is limited investor appetite due to the impact of the COVID-19 pandemic.

“In our view, the higher yields received at the auction were driven by technical factors specific to the bond and should not raise much concern over the general appetite for Philippine government bonds,” it said.