MANILA, Philippines—Bond yields across Asia-Pacific climbed at the start of the year as Vladimir Putin’s campaign to destroy Ukraine and an interest rate hike by the US Fed made borrowings more expensive for emerging markets, like the Philippines, according to the Asian Development Bank (ADB) on Friday (March 25).
In its latest Asia Bond Monitor report, the Manila-based ADB noted that across government and corporate issuances, local currency-denominated bonds in the region hit a record $9-trillion worth last year, as governments and firms borrowed more to finance recovery from the COVID-19 pandemic.
In the case of the Philippines, its local currency bond market grew 14.2 percent to P9.8 trillion in 2021 from P8.6 trillion in 2020.
Government securities issued by the Bureau of the Treasury (BTr) and the Bangko Sentral ng Pilipinas (BSP) accounted for bulk—or 85.5 percent—of last year’s peso bonds outstanding, amounting to P8.4 trillion, up 20.3 percent from P6.9 trillion in 2020. Corporate bonds declined 11.8 percent to P1.4 trillion last year from 2020’s P1.6 trillion.
“Financial conditions in emerging East Asia remain robust, backed by ample liquidity. Most central banks in the region have maintained accommodative monetary stances, even as advanced economies tightened policies,” said ADB chief economist Albert Park in a statement.
“However, continued inflationary pressure may cause more central banks around the world to tighten, which could reduce liquidity and weaken financial conditions,” Park said.
The BSP, for instance, kept the policy rate at a record-low 2 percent last Thursday, even as it now projected headline inflation to average 4.3 percent this year — above its 2 to 4 percent target range of manageable price hikes conducive to economic growth.
While many economies and firms in Asia-Pacific continued to rely on local currency bonds for their financing requirements, the ADB noted that “bond yields in the region rose between Nov. 30, 2021 and March 9, 2022, amid global inflationary pressure and rising yields in advanced markets.”
“Risk premiums have edged up amid dampened investor sentiment due to expected monetary tightening by the US Federal Reserve and the Russian invasion of Ukraine,” ADB said.
“The Federal Reserve hiked interest rates on March 16 for the first time since 2018 and signaled additional increases on the horizon as inflation picks up, partly due to war-related increases in oil and food prices,” it said.
“Global supply chain disruptions and the uncertain trajectory of the COVID-19 pandemic are also threatening the global economic outlook,” the ADB added.
In the Philippines, the BTr fully rejected four straight fund-raising auctions as bid rates sought by domestic creditors skyrocketed after tensions at the Ukrainian-Russian border escalated into a full-blown war in late February.
As the conflict also jacked up global oil and commodity prices, spillover impacts on domestic inflation made creditors jittery, prompting the BTr to cap rates to only partially award treasury bills and bonds during these past two weeks.