Companies issued more bonds to tap the capital markets in 2014, with outstanding peso corporate bonds growing 28.5 percent to reach a cumulative P760 billion as of the fourth quarter from P592 billion a year earlier, the Asian Development Bank (ADB) said.
Corporate bonds accounted largely for the 5.5 percent expansion of the total Philippine local currency (LCY) bond market.
The overall LCY bond market in the country rose by P243 billion to P4.655 trillion ($104 billion) by the end of last year from P4.412 ($99 billion) a year earlier, the latest Asia Bond Monitor report said.
According to the report, the top 31 issuing companies accounted for 89 percent of the total LCY corporate bonds outstanding as of end-December.
On a quarterly basis, corporate bonds at end-December were up 2.3 percent from P743 billion in the previous quarter.
Also quarter-on-quarter, the overall LCY bond market expanded by 1.4 percent from the end-September level of P4.589 trillion ($102 billion).
The ADB report noted, however, that lower proceeds from corporate bond sales tempered the increase in the gross value of outstanding debt issuances.
Govt bonds up, T-bills down
In absolute terms, corporate bonds continued to be dwarfed by government debt issues, as outstanding fixed-income instruments issued by the Philippine government and government-controlled companies stood at P3.895 trillion at end-December, up 2 percent year-on-year.
They were up 1.3 percent from the third-quarter level of P3.846 trillion.
The government bond market consists of outstanding fixed-income instruments issued by the Philippine government and government-controlled companies.
Treasury bills totaled P282 billion during the quarter, down 12.2 percent from P321 billion a year earlier as government placed more emphasis on bonds, data from the Bureau of the Treasury indicated.
Treasury bonds increased 3.7 percent year-on-year to P3.510 trillion, while other fixed-income instruments dropped 10.8 percent to P103 billion from the year and quarter earlier.
Manageable risk, but lower yield
While the report noted that widening credit spreads, a stronger US dollar, Greece’s debt crisis, and plunging oil prices are growing risks to local currency bonds in the Philippines and other emerging East Asian economies, an ADB economist suggested that regional central banks have been managing potential threats.
“While the US Federal Reserve is expected to start raising interest rates and the cost of servicing US dollar-denominated debt is increasing, central banks in several Asian economies are easing their monetary stance and the prices of local currency bonds are broadly holding up well,” ADB Chief Economist Shang-Jin Wei said in a statement.
However, the report revealed that for the period between the end of December 2014 and mid-February 2015, the 10-year sovereign bond yields in the Philippines and other emerging East Asian economies generally declined.
Bond yields in the Philippines declined 45 basis points (bps) during the period, second only to Vietnam, which recorded the biggest drop of 64 bps.
Other economies with significant decreases in 10-year bond yields were China, Hong Kong, Indonesia, South Korea, Malaysia, Singapore, and Thailand.
“Weaker inflationary pressure from lower fuel prices in the region contributed to the lower yields,” the report said.
The ADB report explained that across emerging East Asia, the recent plunge in oil prices has raised concerns over the financial vulnerability of some companies in the petroleum sector and their capacity to meet debt obligations—as well as a decrease in collateral values, which affects their lines of credit.
By contrast, the Philippines along with Singapore saw yields on short-term (2-year) sovereign bonds increase as investors sought longer-tenor issues. Philippine short-term bond yields increased a modest 2 bps during the period, while Singapore short-term paper saw a 26-bps rise.
The ADB report suggested that, at least in the Philippines’ case, a strengthening currency against the US dollar offset some of the yield-reducing effects of lower inflation and lower oil prices, because of the Philippines’ position as a net energy importer.
The Asia Bond Monitor report provides market summaries of the emerging East Asia region, which includes China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.