Rate hike fears spooked bond market in Q2

MANILA, Philippines–Fears over a potential rise in interest rates led to a decline in the number of bond issuances in the Philippines during the second quarter, according to the Asian Development Bank’s (ADB) latest Asia Bond Monitor.

In the three months to June, the country’s corporate bond market shrunk by 1.1 percent from that of the previous quarter to $15 billion, “as most corporates shied away from issuing bonds amid expectations of higher interest rates,” ADB reported Tuesday.

The report noted that the domestic corporate bond market had been on a roll in recent years. The last time it experienced a quarter-on-quarter slide was in the third quarter of 2011.

On a yearly basis, however, corporate bonds jumped by almost a fourth in the second quarter on the back of issuances made by large corporations, such as Ayala Land, RCBC, San Miguel Brewery and SM Investments.

As for the government bond market, it grew on a quarterly basis by 1.9 percent to $87 billion due to the rise of the Bureau of the Treasury’s issuances between April and June. Compared with the same period the previous year, government bonds went up 6.5 percent.

Across the so-called “emerging East Asia,” currency bonds are said to be at risk due to the earlier-than-expected hike in US interest rates, a slowing property market in China, as well as heightened risk aversion and inflation caused by sociopolitical tensions in the Middle East, the ADB said.

“Asia looks well placed to face any volatility, but the risks are definitely rising. Higher US interest rates and a stronger dollar could also make it tougher for the rising number of US dollar borrowers to service their debt,” said Iwan J. Azis, head of the ADB’s office of regional economic integration.

ADB counts China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam as part of emerging East Asia.