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Peso bond market growth slows in Q2

THE growth of the peso bond market slowed to 2.4% from a quarter earlier to P10.68 billion in the three months to June, following reflecting a corresponding slowdown in government and corporate bond issues, the Asian Development Bank (ADB) said.

According to the September issue of the ADB’s Asia Bond Monitor, growth in bond issues slowed from 6.5% in the first quarter.

Growth in the rest of the region’s bond markets was 8.1% for Vietnam, 3.5% for China, and 3% Singapore. Philippine growth was ahead of those for Malaysia (2.3%), Hong Kong (2.1%), South Korea (1%), Thailand (0.7%), Indonesia (0.3%), and Japan (-0.7%).

The year-on-year growth rate for peso bonds in the second quarter was 14.2%.

The peso market consisted of 86.83% in government securities and 13.18% in corporate issuances.

Outstanding government issuances totaled P9.27 trillion as of the second quarter, up 4.1% quarter on quarter and 18.4% year on year. The former represents a slowdown from the 6.5% recorded in the previous quarter.

“The slower growth stemmed from a contraction in the stock of Treasury bills and a slower expansion in the stock of Treasury bonds. On the other hand, growth in the central bank bond stock moderated, while the stock of other government bonds posted strong growth during the review period,” the ADB said.

Treasury bill (T-bill) issues declined 17.1% to P544 billion as of June from the previous quarter and by 46.8% from the previous year, amid a rise in short-term interest rates.

Meanwhile, outstanding Treasury bonds (T-bonds) grew 3.9% quarter on quarter and 27.7% year on year to P8.11 trillion at the end of June “due to a relatively high base in the previous quarter as the Philippine government had issued Retail Treasury Bonds amounting to P457.8 billion in March.”

Outstanding bills issued by the central bank totaled P567 billion, up 38.3% from a quarter earlier and up 41.8% from a year earlier.

This was attributed to efforts by the Bangko Sentral ng Pilipinas (BSP) to mop up excess liquidity to curb inflationary pressures. Inflation was at 6.1% in June, above the BSP’s 2-4% target band.

Meanwhile, corporate bonds outstanding declined 7.1% quarter on quarter to P1.41 trillion and 7.2% from a year earlier.

According to the ADB, this was due to higher borrowing costs, as well as “uncertainties in the Philippine economic outlook and policy direction.”

The second quarter includes May, when the national elections were held and market participants likely paused to gain more clarity on the direction of the new government.

The local currency bond market in emerging East Asia expanded 3.1% quarter on quarter and 14% year on year to $22.91 trillion as of June.

The ADB said bond yields in the Philippines and in emerging East Asia region have been fluctuating according to the monetary authorities’ rate adjustments in reaction to inflation.

Yields for peso government bonds flattened between June 15 and Aug. 15, the ADB reported, citing higher yields on the short end of the curve and declines for longer-dated securities.

“Market optimism over a milder US Federal Reserve tightening supported a modest improvement in financial conditions. But this seems to have been short-lived, as the Fed has been pretty clear in recent weeks that further interest rate hikes are likely,” ADB Chief Economist Albert Park was quoted as saying.

Fed Chairman Jerome H. Powell last week said the US central bank is “strongly committed” to fighting inflation and needs to continue acting aggressively to bring prices down.

The Fed will meet to review policy on Sept. 20-21, with markets expecting another aggressive hike. It has raised rates by 225 basis points (bps) so far since March, including back-to-back 75-bp hikes in June and July.

The BSP is also in the middle of tightening its policy settings to rein in inflation and has raised benchmark rates by 175 bps since May, including an off-cycle rate hike of 75 bps in July.

The Monetary Board’s next meeting is on Sept. 22.

BSP Governor Felipe M. Medalla has said the central bank may need to respond if the Fed remains hawkish, as spillover effects on the market, especially the peso, could affect inflation.

The ADB also cited other risks that might dampen the investor outlook, such as persistent inflation, the lingering impact of the coronavirus disease 2019 (COVID-19) pandemic, a slowdown in China, and the outcome of the Russia-Ukraine conflict. — Diego Gabriel C. Robles

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