Outstanding issues expand 2.3% on quarterly basis
The Philippine local currency (LCY) bond market grew 6.7 percent year-on-year in the third quarter of 2014 as government and corporate bond issues both increased during the period, the Manila-based Asian Development Bank (ADB) said.
In the latest Asia Bond Monitor report, ADB said the country’s total LCY bond issues rose to P4.595 trillion ($102 billion) from P4.307 ($99 billion) a year earlier.
On a quarterly basis, LCY bonds expanded 2.3 percent from the end-June level of P4.492 trillion ($103 billion).
Govt bonds grow, T-bills decline
Outstanding fixed-income instruments issued by the Philippine government and government-controlled companies, or government bonds, rose 2.2 percent year-on-year to P3.846 trillion at end-September.
They were up 0.7 percent from the second-quarter level of P3.819 trillion.
The government bond market consists of outstanding fixed-income instruments issued by the Philippine government and government-controlled companies.
Treasury bills totaled P285 billion during the quarter, down 8 percent from P310 billion a year earlier.
The ADB report traced the drop in Treasury bills to the Bureau of the Treasury’s (BTr) decision to reject some of its Treasury bill auctions as the market continued to seek higher yields amid rising inflationary concerns and policy rate hikes by the central bank.
Treasury bonds increased 3.2 percent year-on-year to P3.445 trillion, while fixed-income instruments issued by government-controlled companies remained unchanged at P116 billion.
Strong growth of corporate bonds
Meanwhile, outstanding LCY corporate bonds swelled 37.6 percent to reach P749 billion in the third quarter, from P544 billion a year earlier, the ADB report said.
On a quarterly basis, corporate bonds at end-September were also up 11.3 percent from P673 billion in the previous quarter.
According to the report, there were 53 companies that had outstanding bonds, with the top 31 issuers accounting for 87.9 percent of total LCY corporate bonds outstanding as of end-September.
From this group, only eight companies were privately-held corporations and the rest were publicly listed on the Philippine Stock Exchange, it said.
Ayala Land remained the largest corporate issuer in the country as of the second quarter, with P57.9 billion of outstanding debt; SM Investments was the next largest borrower, with P41.9 billion, and Ayala Corp. at third, with P40.0 billion.
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.
Regional markets resilient, but face risks
The ADB report said emerging East Asia’s local currency bond markets are resilient but a faster-than-expected United States interest rate hike and a stronger dollar could pose problems.
“Emerging East Asia’s bond markets remained relatively unaffected as global financial market turmoil impacted other emerging markets in the third quarter of 2014,” it stated.
The lender noted that the LCY bond market in emerging East Asia continued to expand in the third quarter, reaching $8.2 trillion at end-September.
Government bond markets accounted for about 60 percent of the total at $4.9 trillion, representing an increase of 3.2 percent quarter-on-quarter, and 11.3 percent year-on-year.
LCY corporate bonds outstanding in the region reached $3.3 trillion at end-September on growth of 2.9 percent quarter-on-quarter and 11.3 percent year-on-year.
China’s bond market remained the largest in the region in the third quarter, accounting for 63 percent of the total market at end-September, followed by the South Korea and Malaysia.
However, the ADB report said a weaker global economic outlook combined with the end of quantitative easing in the United States has generated increased volatility in financial markets, particularly currency markets.
Amid elevated market uncertainty, the US dollar has appreciated on the back of a relatively stronger economic performance in the US and an expected rise in interest rates as quantitative easing ends, it added.
“Higher US rates and a stronger dollar could prove to be a challenge given increased foreign holdings of Asia’s bonds, which could easily reverse, and record US dollar bond issuance by the region’s companies,” said Iwan Azis, head of ADB’s Office of Regional Economic Integration.
The report noted that US dollar debt becomes more expensive to service in local currency terms when the dollar appreciates.
In addition, the lender also noted other risks to the region’s local currency bond markets, such as tightening liquidity in the region’s corporate bond market, and the weaker property market in China that might limit the ability of some property companies to service debt obligations.