Local bond market seen picking up in Q4

MANILA, Philippines - The local bond market is seen to pick up strength in the fourth quarter given a rash of new corporate bond issuances, according to a joint publication of  First Metro Investments Corp. and University of Asia and the Pacific (UAP).

 “We should see a further impetus in Q4 to the robust corporate bond issuances in September, as local companies seek to catch the ebb in domestic interest rates,” FMIC-UAP said in the latest issue of The Market Call.

 “This should provide more papers available in the secondary market, which shall be more active in Q4,” FMIC-UAP added.

 Given the recent improvement in economic prospects in the US, domestic inflation has remained subdued and will continue to be benign.

Low inflation expectations provide room for policy rates to remain benign.

 “With food inflation easing as a result of the resolution of the man-made problems that spawned it, and low crude oil prices, local inflation is expected to ease significantly. These two forces should combine to provide a boost for a GS market rally in Q4,” the report said.

FMIC-UAP expects the government secondary bond market to be more liquid by the end of the month as tax-exempt institutions including large pension funds Government Service Insurance System and Social Security System started trading existing government securities for the first time ever last Oct. 27.

The move changed the rules which allowed over-the-counter trading only among tax-exempt instruments.

An estimated P 800 billion of government securities were made available for trading in the market.

 “Although aimed at improving market efficiency by boosting the amount of tradable government securities, it could also help reduce NG borrowing costs,” FMIC-UAP explained.

According to FMIC-UAP, investors remain wary of long-term maturities due to the uncertain interest rate policy position of the US Federal Reserve.