Spreads on Philippine debt securities continued to tighten in the second quarter, compared with that of the same period in 2010, due to the improved perception of foreign portfolio investors on the country’s credit standing, according to monetary officials.
The Bangko Sentral ng Pilipinas said in a report that the emerging market bond index for the Philippines (EMBI + Philippines), which measures the additional yield asked by investors for purchasing Philippine debt instruments instead of US Treasuries, fell to 182 basis points in the second quarter of this year, improving from the 216 basis points registered in the same period last year.
Central bank officials said the narrowing spread suggested that investors were noticing the improvement in the Philippines’ credit worthiness.
In November last year, Standard & Poor’s raised its credit rating for the Philippines by a notch, from “BB-“ to “BB” or two notches below investment grade.
In June, rating firms Fitch and Moody’s Investors Service likewise raised their scores for the Philippines by a notch.
The country is now rated a notch below investment grade by Fitch, and two notches below the same grade by Moody’s.
The credit rating firms cited the Philippines’ declining budget deficit, growing economy, and rising reserves of foreign currencies, which collectively contributed to the improvement of the country’s ability to service its debts.
While the Philippines improved its credit standing, the same could not be said for the United States and parts of Europe, which are facing burgeoning debt problems.
The EMBI + Philippines for the second quarter, however, was wider than the 159 basis points registered in the first quarter.
The central bank said the quarter-on-quarter deterioration in the index was due to sustained concerns over the debt situation of countries in the Eurozone, as well as the sluggish performance of the US economy.
The debt situation in Europe and the United States fanned fears that the global economic recovery would be stalled after falling into a recession in 2009, officials said.
This development may affect sentiment, even for emerging markets like the Philippines.
Although the Philippines and other emerging Asian markets are expected to perform better than their counterparts in the West, officials said sustained problems in the United States and Europe could eventually take their toll on developing countries.
This is because the United States and parts of Europe tend to buy most of the goods produced by emerging economies, officials explained.
“The EMBI+ Philippine spreads widened in [the second quarter of 2011] on account of external events that led to the perception of higher overall risk relative to the previous quarter,” the BSP said in the report.