PH debt paper spreads hint at worrying uptrend

SPREADS OF Philippine debt paper started to show signs of an upward trend in the first quarter after unfavorable factors in the external environment affected demand for emerging market securities.

But the Bangko Sentral ng Pilipinas yesterday said that spreads in the first quarter were still lower than those seen in the same period last year and the fourth quarter of 2010.

An uptrend was seen as spreads rose from late January to end of March this year, the BSP said.

“Average debt spreads narrowed slightly during the review quarter [first quarter of 2011] compared with the average in Q4 [fourth quarter] of 2010,” the BSP said in a report.

The regulator explained that the spreads “were generally on a widening trend … as sovereign debt woes in Europe resurfaced alongside worries over Japan’s credit rating downgrade.”

Risk aversion

The debt crisis in the Euro zone has increased investors’ risk aversion for instruments from emerging markets in general, affecting Philippine debt paper and that of other Asian countries over US Treasuries in the first quarter.

Central bank data showed that the EMBI + Philippine spread, which indicates the average spread of Philippine debt paper over comparable US Treasuries, averaged 159 basis points in the first quarter—just slightly lower than the 160 basis points recorded in the fourth quarter of 2010.

The latest EMBI + Philippine spread was also lower than the 208 basis points in the first quarter of 2010.

The EMBI + Philippine spread, however, was on a rise from January to March, the central bank said.

“Finance market sentiment turns cautious on negative developments overseas,” the central bank said. The European debt crisis, unrest in the Middle East and North Africa and the disaster in Japan “translated to cautious trading in the local bourse and generally wider Philippine bond debt spreads.” Michelle V. Remo