MANILA, Philippines - Spreads on Philippine bonds narrowed in the first quarter and the Bangko Sentral ng Pilipinas (BSP) said this was a sign that investors have begun to recover from the shock following the collapse late last year of Lehman Brothers and other US financial giants.
The BSP said that credit spreads on debt instruments issued by the Philippines, as measured by JP Morgan’s EMBI+ [Emerging Market Bond Index], dropped to an average of 473 basis points (bps) in the first quarter from 528 bps in the fourth quarter of 2008.
The spread refers to the difference between the interest rate on benchmark bonds, such as US treasuries, and “riskier” bonds such as those issued by the Philippines.
A narrowing spread signals improving confidence of investors in the supposedly inferior bonds.
“The country’s credit spreads eased in the first three months of 2009 relative to spreads in the previous quarter, indicating investors may be regaining some appetite for regional assets amid signs of easing recessionary pressures in major economies,” the BSP said in a report on economic and financial developments for the first quarter released Friday.
Although Lehman Brothers and other failed financial institutions were based in the United States, their collapse adversely affected appetite for supposedly riskier bonds issued by emerging economies like the Philippines.
This was why the spreads on bonds from the Philippines and other emerging economies widened immediately after the collapse of Lehman Brothers, which started the meltdown of the US financial sector.
Spreads on Philippine bonds have narrowed since then but investors have remained cautious, BSP said, as the Philippines recorded a net outflow of portfolio investments in the first quarter.
The BSP said that as of March this year, foreign portfolio investments reversed to a net outflow of $146 million from a net inflow of $540 million in the same period last year.
Officials, however, expressed confidence that investors would eventually realize that the Philippine economy was resilient amid the US-led global turmoil.
