PH bond yields continue to rise

Yields on Philippine bonds bucked the downward trend across the East Asian region amid a weak global economy in the first half of the year, Manila-based multilateral lender Asian Development Bank (ADB) said in a report.

“Amid the backdrop of the US Federal Reserve leaving its key policy rate unchanged at its March and April meetings, yields for most tenors fell between March 1 and May 15 in all of the region’s markets except those of China and the Philippines. Weak global growth also contributed to the decline in yields, which more closely tracked declines in the US,” the ADB said in its Asia Bond Monitor for the month of June.

“The two-year yield fell during the review period for all emerging East Asia economies with the exception again of China and the Philippines. The pattern was similar for the 10-year yield except in China where the 10-year rate was roughly stable,” the report added.

ADB data showed that between March and mid-May, 10-year bond yields increased by 75 basis points (bps) in the Philippines, higher than the 2 bps rise in China and bucking the declines posted in other East Asian countries. Philippine yields spiked in March.

Amid robust and better-than-expected economic growth of 6.9 percent in the first quarter, which was achieved despite the slowing global economy, “yield curve movements were mixed” in the Philippines. “Yields spiked in March following movements in US Treasuries, but they did not follow when US Treasury yields dropped in April, likely because of uncertainties over the national elections in May,” the ADB said.

Despite a slight uptick in credit default swap spreads in the Philippines due to pre-election jitters, the equity market climbed the most—with a 10.5-percent gain—in the region “as the market cheered the relatively peaceful elections on May 9,” the ADB said.

As for the local currency bond market, the first-quarter outstanding amount declined by 1.1 percent quarter-on-quarter to $102 billion.

The ADB attributed the drop to “a decrease in the stock of local currency government bonds, particularly treasury bonds and bonds issued by government-owned or -controlled corporations, as the redemption of maturing bonds exceeded net debt issuance in the first quarter.” The government bond segment accounted for more than four-fifths of the local currency bond stock in the “smaller” markets of the Philippines, Indonesia and Vietnam, ADB data showed.

In the Philippines, “corporate bonds also slipped marginally during the review period, falling 0.1 percent quarter-on-quarter,” the ADB added.

Across the six biggest Asean economies—which besides the Philippines include Indonesia, Malaysia, Singapore, Thailand, and Vietnam, the total amount of local currency bonds issued during the first quarter grew to $179 billion from $170 billion a year ago and $166 billion a quarter ago.

“The quarter-on-quarter growth [in local currency bond issuances] stemmed from increases in Indonesia, the Philippines, and Thailand, while the year-on-year uptick was induced by positive growth in all Southeast Asian markets except Singapore’s,” the ADB said.

Locally, bond issuances reached $4 billion or P190 billion as of end-March following double-digit quarter-on-quarter as well as year-on-year growth on the back of increased sales of treasury bills and bonds.

The Philippines was also able to issue $2 billion in 25-year sovereign bonds in February at a record low coupon of 3.7 percent.