THE peso bond market grew by only 6.7 percent in the July-to-September quarter to $102 billion, a tad lower than year-ago bond sales totaling $103 billion, according to the latest report released by the Asian Development Bank (ADB).
In the Asia Bond Monitor, the ADB said the total local currency bond market reached $102 billion, lower than the $103 billion posted in the second quarter, but higher than the $99 billion posted in the third quarter of 2013.
The slow pace of the country’s local currency bond sales during the period was slower than the 13.3 percent posted in 2013.
“Inflation in the Philippines moderated in September, prompting the central bank to pause its tightening in the last monetary meeting in October, after raising policy rates in September. The Bangko Sentral ng Pilipinas’s assessment is that inflation has now become more manageable,” the ADB said.
“These developments have resulted in largely mixed yield curve movements, with the 10-year yield rising 10 bps [basis points] and the three-year yield falling 20 bps,” it added.
Data showed that government bonds only grew 2.2 percent in the third quarter this year, slower than the 14.5 percent posted in the third quarter of 2013.
According to the ADB, the Bureau of the Treasury rejected some of the bids offered at its Treasury auctions, as the market unsuccessfully sought higher yields in a period marked by
rising inflationary concerns and the likelihood of higher central bank policy rates down the line.
Corporate bonds, on the other hand, grew 37.6 percent in the third quarter, higher than the 5.8 percent posted in the third quarter of 2013. On a monthly basis, the corporate bond market expanded 11.3 percent on quarter.
This made the Philippines the country with the fastest quarterly and annual corporate- bond sales increases in emerging East Asia.
The growth was fueled by offerings from SM Prime Holdings, GT Capital, Aboitiz Power, and Security Bank that led bond and so-called Tier-2 note sales during the period.
Meanwhile, the ADB said a faster-than-expected US interest-rate hike and a stronger dollar could pose problems in the near-term.
US dollar debt becomes more expensive to service in local currency terms whenever the dollar appreciates.
“Higher US rates and a stronger dollar could prove to be a challenge given increased foreign holdings of Asia’s bonds, which could easily reverse, and record US dollar bond issuance by the region’s companies,” ADB Office of Regional Economic Integration head Iwan J. Azis said.
The report noted other challenges from tightening liquidity in the region’s corporate bond markets as Basel 3 requirements deter banks from holding large bond inventories, and a weaker property market in the People’s Republic of China (PRC), given many property developers there are highly indebted.
Markets are currently anticipating that the US Federal Reserve will increase interest rates around June next year but recent economic data suggest the economy is improving faster than anticipated. The US dollar, meanwhile, has appreciated against most emerging East Asian currencies recently, and monetary tightening would likely see it rise further.
Respondents to the survey also said key constraints to market liquidity are still a narrow investor base, foreign-exchange regulations, tax treatment, the lack of instruments for hedging and for transaction funding, and
low transparency.
The Asia Bond Monitor is part of the Asian Bond Markets Initiative, an Asean+3 initiative supported by the ADB. The report is part of the implementation of a technical assistance project funded by the Investment Climate Facilitation Fund of the Government of Japan.
The Asia Bond Monitor—November 2014 was prepared by ADB’s Office of Regional Economic Integration. It covers emerging East Asian economies PRC; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Vietnam.