THE COUNTRY’S debt market grew in the third quarter, arresting a decline seen in the first half of the year, following the government’s bond swap aimed at bringing down borrowing costs.
In a recent report, the Asian Development Bank (ADB) said the Philippine bond market was expected to recover next year due to the implementation of the central bank’s interest rate corridor.
From July to September this year, local currency bond issuances in the Philippines rose 298.5 percent quarter on quarter or 38.3 percent year-on-year to P447 billion, based on the ADB’s latest quarterly Asia Bond Monitor report.
Growth was led by an increase in treasury bonds from a successful bond swap conducted in September.
“The most recent bond swap conducted by the Bureau of the Treasury in September was part of the government’s efforts to deepen liquidity in the local currency bond market,” the report read.
As a result of the surge in the third quarter, outstanding peso-denominated bonds rose 1.7 percent quarter-on-quarter to P4.723 trillion at end-September. This was a reversal of the 0.5-percent decline in the previous three months.
The government’s bond swap in September hit P237 billion, more than double the initial target amount. The long-term bonds issued by the government replaced existing instruments with higher premiums that were held by investors.
Government securities accounted for the majority of bonds outstanding, totaling P3.939 trillion, while corporate bonds summed to P784 billion. On a year-on-year basis, the peso bond market grew 2.8 percent in the third quarter.
Banks own 35.8 percent of all outstanding government bonds and contractual savings institutions own 29.5 percent. Liquidity in the Philippine bond market is driven mostly by banks, as the contractual savings institutions tend to be buy-and-hold investors.
The ADB said the central bank’s plan to implement an interest rate corridor by next year would help deepen the country’s financial markets. “The interest rate corridor system is expected to improve the liquidity management of financial institutions by serving as an alternative for borrowing and lending activities, and is deemed to be beneficial to market liquidity as a whole,” the ADB said.