Philippine bond market posts slower growth amid rising rates

MANILA, Philippines — The Philippine bond market grew at a slower rate in the second quarter, as local companies held back from borrowing more cash amid rising interest rates.

Outstanding peso-denominated bonds sold by corporates and the government grew 2.4% quarter-on-quarter in the April-June period to P10.68 trillion, according to Asian Development Bank’s latest “Asia Bond Monitor” report released Wednesday.

That was slower compared to the 6.5% sequential growth recorded in the first quarter. Explaining the slowdown, the Manila-based lender said corporate bond issuances contracted while growth in the government bond segment moderated.

The corporate bond market size’s reached P1.4 trillion by the end of second quarter, down 7.1% quarter-on-quarter. ADB said corporate bond issuances fell 40.2% on a sequential basis to P91.2 billion, after companies held off from selling new debt papers as investors ask for higher rates amid tightening monetary policy meant to choke off rapid inflation.

“Uncertainties in the Philippine economic outlook and policy direction also dragged down issuance volume during the quarter,” ADB added.

The Bangko Sentral ng Pilipinas raised its benchmark rate by 25 bps each in May and June to combat a painfully high inflation driven by rallying oil prices and a falling peso. So far this year, the central bank has jacked up its policy rate by a total of 175 basis points in a bid to temper inflation.

The impact of the BSP’s jumbo hikes was also felt by the government, which is facing a difficult task of bridging a large budget deficit while trying to cut its debts. ADB reported that the state’s outstanding peso-denominated bonds grew 4.1% quarter-on-quarter to P9.27 trillion, easing from 6.5% sequential growth chalked up in the first quarter.

Broken down, yields for short-dated tenors rose, while those for longer-dated maturities declined in the second quarter, ADB said. As a result, the shorter-dated Treasury bills contracted 17.1% quarter-on-quarter during the period while Treasury bonds growth eased 3.9% to P8.1 trillion.

“Investors increasingly preferred longer maturities as yields continued to decline following the flattening of the Philippine yield curve,” the ADB added. 

Meanwhile, the BSP continued to post strong growth in its securities to mop up excess liquidity in the market to help curb inflationary pressure. The outstanding stock of central bank securities rose to P567.2 billion in the second quarter, albeit resulting in a slower sequential growth of 38.3% from 57.7% expansion in the preceding quarter.