Phl bond market second fastest-growing in East Asia

MANILA, Philippines - The Philippine bond market was the second fastest-growing among emerging economies in East Asia last year, rising by 20.5 percent as the unresolved budget deadlock in the US and the debt crisis in Europe prompted investors to turn to safe-haven and higher yielding investments.

According to the Asian Development Bank’s latest Asia Bond Monitor, the bond market in the Philippines was one of the most preferred sites for portfolio investments given the country’s robust economy supported by strong domestic consumption and investment growth.  It came second to Vietnam, whose bond market grew 42.7 percent.

Outstanding fixed-income instruments issued by the government and government-controlled companies reached P3.6 trillion as of end-December last year.

Treasury bonds registered the most rapid pace, rising by 24.5 percent to P3.2 trillion last year from a year ago.

Outstanding treasury bills represented a 6.8-percent growth to P275 billion while that of corporate bonds posted an annual growth rate of 20.7 percent at P526 billion.

For the entire region, the outstanding amount of bonds stood at $6.5 trillion or an increase of 12 percent in local currency terms. The corporate markets, though smaller than the government bond markets, drove the increase, growing 18.6 percent to $2.3 trillion last year.

In the past 10 years, emerging East Asia’s bond markets have grown by over 16 percent annually and now account for nearly 10 percent of total global bonds outstanding.

According to the ADB, the region’s growing bond markets have reduced the need to borrow in foreign currency, allowing government and companies to borrow more in and at longer maturities.

A heavy reliance on foreign borrowing in the past has caused exchange rates to depreciate, forcing governments to either reduce spending or raise taxes.

Finance Secretary Cesar V. Purisima said the bond market is an important pillar of economic growth if the Philippines is to build sustainable infrastructure.

Purisima said the government is confident the country’s bond market will continue to grow at a faster pace given President Aquino’s good governance program.

He said the market has significant room for growth, noting that only a few corporations have been tapping the debt market, of which 60 percent comprises banks.

The government has programmed P120 billion in borrowings in the first quarter this year through its regular auctions,This will consist P45 billion of Treasury bills with 91,182 and 364-day tenors and the remainder in the form of treasury bonds with maturities of 7, 10 and 25 years.

Thiam Hee Ng, senior economist in ADB’s Office of Regional Economic integration, however, cautioned that the surge in capital inflows could raise the risk of asset price bubbles in the region.

 â€œEmerging East Asia is much more resilient than it used to be but governments still need to be careful that the surge in capital inflows doesn’t fuel excessive rises in asset prices and that they are prepared for a possible reversal in the flows when the economies of the US and Europe pick up again,” Ng said.