• Bond market grows in Q3; risks remain – ADB

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    THE Philippines’ local currency (LCY) bond market expanded in the third quarter of 2016, but several risks remain for emerging East Asia including the Philippines, the Asian Development Bank (ADB) said on Tuesday.

    The Philippine bond market grew by 1.6 percent at P4.8 trillion in July to September from P4.723 trillion a year earlier, latest “Asia Bond Monitor” report.

    Government securities accounted for the bulk of outstanding bonds at P3.955 trillion, while corporate issuances reached P845 billion in the third quarter.

    “The largest issuance of government securities during the quarter was September’s sale of Retail Treasury Bonds worth P100 billion, maturing in10 years and carrying a 3.5 percent coupon,” report noted.

    Among the notable corporate bond issues were:

    SMC Global Power Holdings—P15 billion; Ayala Corp.—P10 billion; SM Prime Holdings—P10 billion; Metropolitan Bank & Trust Co.—P8.65 billion (long-term negotiable certificates of time deposit)

    The bonds of Ayala Corp. and SM Prime were part of an enhanced shelf-registration program launched in November 2015. The program allowed corporate issuers to time their fund-raising activities as needed and take advantage of favorable market conditions.

    “According to the Securities and Exchange Commission, the shelf registration program has helped boost the issuance of corporate securities thus far in 2016,” the Manila-based multilateral lender said.

    Banks and investment houses were the most dominant investor group in Philippine government bonds, their holdings comprising 37 percent of the total as of end-September.

    Risks
    The lender noted the risks to emerging East Asia’s bond market include the prospective interest rate hike by the Federal Reserve, uncertainty over the direction of US economic policy, a “hard Brexit,” a general global risk aversion toward emerging markets, and the rise of protectionism and economic nationalism.

    It said government bond yields in advanced economies and emerging East Asia climbed between October 31 and November 18 due to increased concerns over the direction of the US economy.

    “With the recently concluded US election, markets outside of the US experienced rising uncertainty and increased risk aversion as investors struggled to discern the future direction of the incoming US administration’s economic policy,” it said.

    “The US economy has also strengthened, increasing the likelihood that the Federal Reserve will raise the policy rate in December,” it added.

    Nevertheless, ADB Deputy Chief Economist Juzhong Zhuang said strong fundamentals such as high levels of foreign reserves will help emerging East Asia withstand the short-term impacts of a likely US rate hike.

    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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