Bond market grows but ADB notes risks

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THE local currency (LCY) bond market posted growth in the third quarter of 2015 but faces liquidity and growth risks, the Asian Development Bank (ADB) said on Thursday.

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The Philippine LCY bond market grew by 2.8 percent to P4.723 trillion in the July to September period from P4.594 trillion a year earlier, according to the institution’s latest “Asia Bond Monitor” report.

Government securities accounted for the bulk of outstanding bonds at P3.939 trillion, while corporate issuances reached P784 billion during the quarter.

The domestic bond market also grew by 1.7 percent from the P4.645 trillion in the second quarter.

The report noted that outstanding fixed-income instruments issued by the Philippine government and government-controlled companies increased by 1.1 percent to P3.939 trillion as of end-September from end-June.

“The rise was most notable in the outstanding stock of Treasury bonds, primarily due to the new funds raised from the most recent bond swap conducted by the Bureau of the Treasury,” it said.

In September, the Treasury accepted total exchange offers of eligible bonds worth P237 billion and new subscription offers P9.6 billion. It raised P121 billion worth of new 10-year benchmark bonds and P142 billion in new 15-year benchmark bonds, priced at 3.625 percent and 4.625 percent, respectively.

A similar uptrend was noted for outstanding Treasury bills, which increased by 2.6 percent to P282 billion from a quarter earlier, while outstanding Treasury bonds were up 1 percent quarter-on-quarter to P3.577 trillion.

Outstanding LCY corporate bonds, meanwhile, surged by 4.7 percent to P748 billion but only 51 companies were actively tapping the Philippine bond market.

The top 30 issuers accounted for 89.9 percent of the total corporate bonds outstanding as of end-September.

Real estate firm Ayala Land topped the list with total outstanding bonds worth P64.9 billion. Metrobank and holding company Ayala Corporation were second and third at P46.8 billion and P40 billion, respectively.

Tigthening liquidity

The Manila-based lender said there were concerns that liquidity in the emerging East Asia region, which includes the Philippines, was tightening because banks were cutting back on their bond inventories.

“Limited liquidity in the region’s bond markets could mean there are few buyers at a time when investors are looking to sell their bonds, resulting in large price swings that could make the bond market look riskier and induce greater outflows,” the report states.

Also, slower economic growth in emerging East Asia could lead to weaker fiscal conditions for governments, while corporates would likely see profits reduced.

“These factors could lead to ratings downgrades for some of the region’s bonds. Increased risk perception could also inch up yields and make it harder for corporates to raise fund through the bond market,” it added.

The Asia Bond Monitor provides market summaries of emerging East Asia, which includes China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

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