PHL bond market’s growth eases in Q2

THE PHILIPPINES was the second-fastest growing bond market in the second quarter among emerging East Asia region, even as expansion was at a “modest” pace amid slower government issuances, the Asian Development Bank (ADB) reported on Wednesday.

The September issue of ADB’s “” report released Wednesday showed the Philippines was the second-fastest growing bond market in emerging East Asia next only to Indonesia.

The sub-region consists of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam.

Outstanding bonds issued by the Philippines climbed 1.8% in the second quarter from the preceding three months to $131 billion (P6.707 trillion), fueled by an 1.7% increase in government-issued notes to $103 billion (P5.29 trillion) and a 2.3% rise in corporate bonds to $28 billion (P1.417 trillion).

Year-on-year, total bonds outstanding in the second quarter expanded by 16.8% — with government issuances climbing 15.2% and corporate bonds rising 23.3%. The local market also logged the second-fastest growth from the previous year after Indonesia’s 17.6%.

However, this eased from the 17.8% year-on-year growth logged the previous quarter.

“The outstanding amount of LCY (local currency) bonds in the Philippines leveled off…at the end of June…. Government bonds remained the driver of growth, albeit through a slower expansion of 1.7% q-o-q (quarter-on-quartet) in Q2 2019 versus 8.8% q-o-q in Q1 2019. The government lowered its issuance volume in Q2 2019 due to a sound cash position resulting from underspending and strong issuance in the prior quarter due to auction taps and the success of retail Treasury bond issuance,” ADB said in the report.

Broken down, of the Philippines’ outstanding LCY government bonds, Treasury bills grew by 7.4% quarter-on-quarter to $13 billion (P652 billion), while Treasury bonds inched up by 1.2% to $90 billion (P4.62 trillion).

Year on year, T-bills grew 71.2% while T-bonds grew 10.7%.

“The slower growth was primarily driven by the high base in Q1 2019 due to the large issuance of retail Treasury bonds, which also resulted in minimal growth in Treasury bonds…,” ADB said.

The lender said the issuance of government bonds in the second quarter fell by more than half to P312 billion from P675 billion in the previous quarter. This was mainly due to the large issuance volume of Retail Treasury bonds of P236 billion in the first quarter.

The government also had a lower planned issuance volume in the second quarter compared with the previous quarter and likewise made rejections and partial awards due to high rates sought by market participants.

Meanwhile, the corporate bond segment also registered slower quarter-on-quarter growth of 2.3% to P1.42 trillion in the April-June period, easing from 5.4% in the first quarter “as maturities capped issuance, which more than doubled during the quarter,” the multilateral lender. Year-on-year, corporate bonds grew 23.3%.

The top three sectors in terms of issue peso-dominated corporate bonds outstanding were banking with P492 billion, accounting for the 34.7% of the total, property (P353 billion or 24.9%) and holding firms (P259 billion or 18.2% of the total).

Emerging East Asia’s LCY bond market grew 3.5% in second quarter from the preceding three months and by 14.% year-on-year, the multilateral lender said.

“This growth though is tempered by various risks in and around the region,” it said.

“In particular, the persistence and intensification of the trade conflict between the PRC (People’s Republic of China) and the US poses by far the most significant threat to emerging East Asia’s economic growth and financial stability…. Since most emerging East Asian economies have close trade, investment, and other economic linkages with both giants, they are likely to be hit hard if the trade row deepens further.”

Despite growing faster than most of its neighbors, the Philippines’s bond market continued to be the second smallest in emerging East Asia, only beating Vietnam’s $53 billion. Meanwhile, China remained to be the largest issuer in the second quarter with $11.512 trillion, followed by Korea with $2.019 trillion and Thailand with $425 billion. — BML