PHL bond market’s growth slows in Q4 on maturities, lower issues

ADB 041719 - PHL bond market’s growth slows in Q4 on maturities, lower issuesBW FILE PHOTO

THE GROWTH of the Philippine bond market eased in the fourth quarter of 2019 after the stock of government bonds declined as some issues matured and amid lower issuances, according to an Asian Development Bank (ADB) report.

According to ADB’s March Asia Bond Monitor report released Wednesday, the country’s outstanding local currency (LCY) bonds grew nine percent year on year in the fourth quarter to $131 billion (P6.646 trillion), slower than the 15.7% expansion seen in the third quarter.

In the emerging East Asia region, the Philippine bond market was the fourth fastest growing market, behind Indonesia’s 16.6%, Singapore’s 14.7% and China’s 14.1% and also below the region’s average of 12.5%.

Emerging East Asia is composed of the People’s Republic of China, Hong Kong, Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The quarter’s growth was fueled by the 14.5% jump in corporate bonds and the 7.5% hike in government bond stock.

On a quarterly basis, the country’s outstanding LCY bond market weakened in the fourth quarter last year after seeing a 0.8% year-on-year drop on the back of the four percent growth in corporate bonds, but was dragged by the 2.1% contraction in government’s bond stock.

“A huge volume of Treasury bills and bonds matured in Q4 2019, reducing the stock of government bonds outstanding despite a hefty issuance volume during the quarter,” the report read.

Of the government’s LCY bond stock that stood at $101 billion (P5.141 trillion) as of end-December, Treasury bills (T-bills) grew 7.5% year on year to $101 billion (P5.141 trillion) and Treasury bonds rose 8.5% to $91 billion (P4.615 trillion).

Quarterly, the T-bill stock slumped to $10 billion (P486 billion) in the fourth quarter from the $11 billion (P553 billion) seen in the preceding quarter, while T-bonds also fell to $91 billion (P4.615 trillion) from $90 billion (P4.678 trillion) previously.

For corporate bonds, the LCY corporate bond market expanded to $30 billion (P1.505 trillion) in the last quarter from $28 billion (P1.447 trillion) in the preceding three months as well as the $25 billion (P1.315 trillion) seen in the fourth quarter of 2018.

Meanwhile, total bond issuances stood at $7.5 billion in the last three months of 2019, up 8.8% quarter on quarter on the back of the 42.4% surge in corporate bond issuances and the 0.4% dip in government securities, “as the Bureau of the Treasury had already met its annual issuance target during the preceding three quarters.”

“Reduced government bond issuance was also partly due to lower spending in the first half of 2019 as a result of the late approval of the government’s budget,” ADB said.

In terms of size, China remained largest at $12.090 trillion outstanding bond stock as of end-December, followed by Republic of Korea at $2.083 trillion, Thailand’s $446 trillion and Malaysia’s $363 trillion. Emerging East Asia region’s total bond market size stood at $16.036 trillion.

ADB flagged the coronavirus disease 2019 (COVID-19) outbreak as a risk to bond markets in the coming months.

“Between 31 December 2019 and 29 February 2020, 2-year and 10-year local currency government bond yields declined in major advanced economies, select European markets, and nearly all emerging East Asian markets amid heightened risk aversion due to the coronavirus disease 2019 outbreak and an uncertain global economic growth outlook,” ADB said.

“Many regional governments and central banks engaged in policy actions to mitigate the negative impact of COVID-19 on economic activities and financial markets. These include fiscal stimulus and monetary tools such as policy rate cuts and market operations,” it said.

The Bangko Sentral ng Pilipinas last week cut rates by 50 basis points (bps) to help boost the economy amid an expected slowdown due to the outbreak. This brought the overnight reverse repurchase rate to 3.25%, while overnight lending and deposit rates were trimmed to 3.75 to 2.75%, respectively.

On Monday, the central bank announced it will buy P300 billion in securities from the Bureau of the Treasury to help the government fund initiatives to help the economy weather COVID-19’s effects. On Tuesday, it also cut the reserve ratio of universal and commercial banks by 200 bps to 12% effective March 30.

On the fiscal side, economic managers earlier announced a P27.1-billion stimulus package to help sectors most affected by the virus outbreak.

The multilateral lender said other downside risks include geopolitical issues amid heightened tensions in the Middle East, as well as uncertainty over trade and globalization. — B.M. Laforga

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