Gov’t issuances fuel expansion of PH bond market

The Philippine bond market further expanded in the past two months or so as the government ramped up issuances to finance the protracted fight against COVID-19 and given higher yields due to elevated inflation, the Asian Development Bank (ADB) said on Friday.

The ADB’s Asia Bond Monitor report for June showed that from Feb. 28 to May 15, yields of government-issued bonds rose across all tenors.

Bonds with the longest maturities of 10-25 years, in particular, had the biggest yield increases, averaging 35 basis points (bps), the ADB noted.

“The upward movement across the yield curve can be traced to inflation risks as consumer prices are still elevated,” it said.

As of end-May, headline inflation averaged 4.4 percent year-on-year, higher than the government’s 2 to 4 percent target range. The above-target rate of increase in prices of basic commodities was mainly a result of expensive food, especially pork.

“The implementation of nonmonetary measures by the government, particularly on meat products, aims to temper supply-side inflationary pressure in the coming months,” the report said.

Also, “the weak economic performance on the back of subdued economic activity may have also contributed to yield increases,” it added. The Philippines remained in a recession in the first quarter of 2021, as gross domestic product (GDP) shrank 4.2 percent year-on-year.

“With constrained business operations due to ongoing COVID-19 restrictions, tax revenue has been lower, resulting in expectations that the government will borrow more in the bond market for its funding needs, thus putting upward pressure on yields,” the ADB said.

The Bureau of the Treasury had been increasing its monthly domestic borrowings program —mainly through the sale of short-dated treasury bills and fixed-rate bonds—as local debt sources will account for P2.58 trillion of the P3.1-billion borrowing program for 2021. —BEN O. DE VERA