Government drives bond market growth in Q3

MANILA, Philippines — The domestic bond market expanded by 20 percent to P9.76 trillion in the third quarter, fueled by government-led issuances as the state ramped up borrowings with the budget deficit continuing to widen, Manila-based Asian Development Bank (ADB) said.

Based on the latest Asian Bond Monitor, the total outstanding local currency bond issuance in the Philippines rose to P9.76 trillion as of end-September, up 20 percent from a year ago.

This is also a 4.4 percent improvement from P9.35 trillion in the second quarter.

During the review period, government bonds amounted to P8.32 trillion, which comprised more than 85 percent of the local bond market.

This is largely supported by the issuance of more Treasury bonds at P6.88 trillion, on the back of higher bond offer volume and sales during the quarter.

The Bangko Sentral ng Pilipinas also contributed to the expansion in the government bond market’s size, with its outstanding securities surging 780 percent to P440 billion from just P50 billion in the same period last year.

The government plans to borrow P3 trillion this year to fund its widening budget gap in response to COVID relief measures and associated economic recovery plans.

The local bond market also saw yields increase and ADB said this may have been due to some uncertainty in the domestic economic recovery, resulting in investors requiring a premium for the associated risks.

“Persistently high inflation might temper the recovery by discouraging consumer spending on the back of a weak labor market,” ADB said.

“While its vaccination rate is improving, the Philippines remained among the lowest in the region in terms of the percentage of the population vaccinated, making it vulnerable to economic setbacks,” it said.

On the other hand, outstanding corporate bonds declined by 12 percent to P1.44 trillion on a yearly basis. It took 14.7 percent of the domestic bond market.

It also registered a 5.1 percent decline quarterly due to maturation of bonds amid low issuance volume during the period.

The outstanding local bonds of the top 30 corporate issuers reached P1.28 trillion, nearly 90 percent of the entire corporate bond market.

By sector, banks still comprised the largest share at 38.6 percent at P530 billion. By issuer, BDO Unibank Inc. topped the list with P109.9 billion.

In the emerging East Asia region, local currency bond markets expanded to $21.7 trillion by end-September although rising global inflation and a shift in the US monetary stance weakened regional financial conditions.

Emerging East Asia includes China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam.

ADB said bond yields rose, currencies weakened, and risk premiums edged up amid increased global inflation and the US Federal Reserve’s announcement that it would limit bond purchases starting in November.

“Central banks in the region may find they need to be less accommodative to keep inflation in check and to keep in step with US monetary policy changes,” ADB acting chief economist Joseph Zveglich said.

“That said, the chance of another ‘taper tantrum’ is limited as the direction of the Federal Reserve’s stance is clearly communicated and the region’s economic fundamentals remain strong,” he said.