Spreads on PH debt paper narrow

The spreads on Philippine debt paper narrowed in the third quarter as the economy’s favorable growth performance and the upgrade in its credit rating outlook boosted the appetite for securities.

According to the Bangko Sentral ng Pilipinas, favorable economic developments in the country and the weakness of the global economy prompted investors to go for portfolio assets of Philippine issuers.

Data from the BSP showed that the “EMBI + Philippine spreads,” which indicates the extra yield investors demand for choosing Philippine bonds over low-risk US Treasuries, averaged at 164 basis points in the third quarter.

This was a significant drop from the 208 basis points registered in the same period last year, and down from the 210 basis points in the second quarter of this year.

Officials said the declining cost of borrowing, particularly with the narrowing of bond spreads, should help encourage firms to secure funds from the capital markets and invest more.

The narrowing of the spreads came amid the Philippine economy’s robust growth and after Moody’s Investors Service raised the country’s credit rating from two notches to just a notch below investment grade.

Moody’s cited the government’s improving fiscal condition and rising foreign-exchange reserves, among other indicators, for its improved assessment of the country’s creditworthiness.

“Reflecting the Philippines’ credit rating upgrade, the country’s bond spreads generally narrowed in the third quarter due to improving macroeconomic fundamentals alongside the favorable external market conditions,” the BSP said in its “Report on Economic and Financial Developments” for the third quarter that was released Friday.

The decline in spreads on Philippine debt paper likewise came with the increase in liquidity in the international capital markets.

The BSP said the move of central banks of other countries to inject more cash into their jurisdictions to stimulate growth of their economies also benefited the Philippine capital market in terms of higher demand for the local securities.

Foreign central banks, including the US Federal Reserve, would stimulate growth of their economies partly through bond purchases. Some of the proceeds of the bond purchases were used by investors to buy emerging market assets, including Philippine securities. Michelle V. Remo