Local corporate bonds seen picking up next month

MANILA, Philippines - The Philippine corporate bond market is expected to pick up next month as fears of a looming interest rate hike will push investors towards safe haven assets.

“Corporate debt issuances should pick in the latter part of first quarter and peak at around third quarter, as fears of higher interest rates may descend on the markets by the latter period,” according to the latest issue of Market Call, a joint publication of First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UAP).

“With larger offering sizes, we expect more robust secondary trading in corporate bonds for this period,” FMIC-UAP said.

The US Federal Reserve is seen to raise interest rates as early as June this year.  It last raised rates in 2006.

US Fed chaiman Janet Yellen told a Congressional committee early this week they were considering interest rate hikes “on a meeting-by-meeting basis.”

With the decline in government bond yields appetite for corporate bonds was stronger.  Secondary trading volume grew by 32.4 percent from December last year.    

Corporate bonds are much less risky and the yields are considerably higher than those of Treasury bonds.

FMIC-UAP said lower domestic inflation and crude oil prices would encourage more investors to invest in local Treasury bonds.  “However, as the local market may have overshot the expected bottom, there may be little further downward bias left,” it said.

The continuing decline in rice prices and crude oil prices breaching $50 a barrel should put further downward pressure on inflation.

FMIC-UAP expects inflation to average 2.4 percent in the first half and to rise slightly in the second semester.

“With inflation slipping and US Treasury bonds also southward bound, we see strong downward pressure on interest rates, which should spur consumer and investment spending,” FMIC-UAP said.

Exports are forecast to slow down in the first quarter as consumer confidence in the US has been very volatile despite improvements in job creation.