Start of dovish cycle perks up local bond market       

Lower interest rates amid the ongoing easing cycle of the Bangko Sentral ng Pilipinas (BSP) supported the growth of local currency (LCY) bond issuances in the third quarter, with corporate borrowers regaining their appetite for fresh debt.

Figures from the latest Asia Bond Monitor report of Manila-based Asian Development Bank (ADB) showed offerings of peso-denominated debt securities had increased by 11 percent quarter-on-quarter to P2.9 trillion in the three months ending in September.

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By type of issuer, offerings from the government jumped by 34 percent while corporate bond issuances spiked more than threefold, with banking giants BDO Unibank and Bank of the Philippine Islands making the largest debt sale among firms in the third quarter.

The multilateral lender attributed such growth to declining borrowing costs after the BSP had kicked off its rate-cutting cycle. Between Sept. 2 and Oct. 31, ADB monitoring showed that yields on LCY government bonds had fallen by 33 basis points (bp) on average across all tenors.

The growth in issuances, in turn, supported the expansion of the domestic bond market. The ADB said total outstanding peso bonds had breached P13 trillion by the end of the third quarter, registering a 3.8-percent sequential increase.

Corporate debt rebound

Broken down, government bonds grew by 3.6 percent amid a high volume of debt maturities that had to be paid. Total corporate debt stock, meanwhile, rose by 3.1 percent—recovering from the previous quarter’s 7.7-percent contraction—as companies were encouraged by the dovishness of the BSP.

Unlike in the United States, where a slowing job market prompted the US Federal Reserve to deliver a jumbo 50-bp cut in September, the BSP had entered its easing era in August with the traditional quarter-point reduction to the policy rate.

In October, the BSP cut the policy interest rate by 25 bp again to 6 percent, with Governor Eli Remolona Jr. dropping clear hints of additional—but gradual—easing moves. But Remolona last week floated the possibility of an easing pause at the Dec. 19 meeting of the Monetary Board, citing persistent price pressures. —Ian Nicolas P. Cigaral