The Philippine bond market grew more slowly in the second quarter, even as local yields declined and bucked the Bangko Sentral ng Pilipinas’ (BSP) ongoing rate-hiking cycle, the Asian Development Bank (ADB) said.
In its latest “Asia Bond Monitor” report, the Manila-based multilateral lender said outstanding local currency bonds, excluding debt securities with maturities of one year or less, rose 2.7 percent from the previous quarter to P13.2 trillion. That was slower than the 3.5 percent growth recorded in the first quarter.
Including short-term debt papers, the peso-denominated bond market expanded 3.3 percent sequentially to P14.5 trillion, slightly faster than the 2.8 percent increase in the previous quarter.
Furthermore, growth slowed even as local bond yields fell by an average of 21 basis points between June and August, with declines concentrated in securities with maturities of one year or longer.
Meanwhile, the ADB said moderating inflation and weaker economic growth put less pressure on yields, offsetting the impact of the BSP’s rate hikes. The central bank has raised its key rate by a total of 0.75 percentage point since April, bringing the policy rate to 5 percent.
“In the Philippines, yields declined despite rate hikes in June and August as lower geopolitical risks eased inflation concerns and weak domestic data tempered expectations of further monetary tightening,” the ADB said.
“The Philippines recorded the largest narrowing in risk premia as easing geopolitical tensions and declining inflation supported investor confidence,” it added.
Addionally, growth slowed across both government and corporate debt. Outstanding government bonds rose 2.6 percent from the previous quarter, slower than 3.4 percent in the first quarter, while corporate bonds grew 3.2 percent, compared with 4.4 percent previously.
However, bond issuance also weakened in the second quarter, with local currency issuance falling 45.1 percent from the previous quarter to P476.2 billion after surging 211.6 percent in the first quarter.
Likewise, the ADB attributed the sharp retreat partly to a high base from the government’s front-loaded borrowing in the first quarter, when fiscal planners sought to lock in lower rates before borrowing costs rose.
Government bond allocation fell 46.1 percent from the previous quarter, while corporate issuance fell 41 percent, and both segments contributed to the overall drop in issuance activity.
