MANILA, Philippines–The country remained an investors’ darling in 2014, with markets pricing Philippine debt paper cheaper than its similarly rated peers, data from the central bank showed.
Debt spreads—or the price difference between local sovereign bonds and their equivalent US Treasuries—across the region widened in the last 12 months as money flowed away from emerging markets in favor of advanced economies.
Amid the exodus of cash, Philippine debt paper still emerged as the strongest.
Philippine spreads averaged 138 basis points in the third quarter, up from the previous quarter’s 127 basis points.
“Bond spreads generally widened, indicating higher risk aversion toward Philippine sovereign debt papers,” the BSP said in a report released this month.
The insurance premium for holding a 5-year government bond, meanwhile, declined with credit default swap (CDS) spreads contracting to an average of 87 bps from 94 bps in the second quarter 2014.
Against those of neighboring economies, the Philippine CDS traded lower than Indonesia’s CDS average of 146 bps, Thailand’s 95 bps and close to Malaysia’s 82 bps.
The narrowing of Philippine CDS spreads indicates investors viewed government’s debt papers as safer investments than before. The Philippines is rated by credit agencies such as Moody’s, Fitch and Standards & Poor’s at par with Thailand and Indonesia. Malaysia has among the highest credit ratings in the Southeast Asian region.
In 2013, the Philippines achieved its highest credit rating ever as it crossed the line to “investment grade” from its previous “junk” status. This year, the country resumed its ratings climb as it won further upgrades from Standard & Poor’s and Moody’s.
The upgrades were in recognition of the country’s stable macroeconomic fundamentals, improving fiscal condition and the government’s crackdown on corruption.
Philippine debt spreads initially narrowed in July due to lower-than-expected inflation reports during the month.
“A credit rating upgrade received by the Philippines from the Japan-based credit rating agency, R&I, likewise contributed in the narrowing of credit spreads,” the BSP said.
This narrowing was not sustained in August amid heightened risk aversion in global markets due to escalating tensions in the Middle East and continued violence in Russia and Ukraine.
“On the domestic front, headline inflation accelerated as most food items posted higher prices due to tight domestic supply conditions triggered by recent weather-related production disruptions, adding pressure for debt spreads to widen,” the BSP said.