THE local currency (LCY) bond market barely moved in the fourth quarter of 2015, tracking the performance of other regional markets, the Asian Development Bank (ADB) said on Thursday, noting that the market will continue to be affected by uncertainty on global growth prospects and continuing lackluster economic performance in industrialized economies.
The Philippine LCY bond market grew by 1.9 percent to P4.752 trillion in the October to December period from P4.663 trillion a year earlier, according to the institution’s latest “Asia Bond Monitor” report.
Government securities accounted for the bulk of outstanding bonds at P3.946 trillion,
while corporate issuances reached P806 billion during the quarter.
However, terms of year-on-year growth, corporate bond market outpaced the expansion in the government bond market during the period.
Corporate bonds grew 5 percent in last quarter of 2015, while government bonds only grew 1.3 percent during the same period.
The Manila-based lender said yields of local currency bonds in most emerging East Asian markets remained on a downward trajectory in the first month and a half of this year, pressured by worries over global growth prospects and still lackluster economic performances in industrialized economies.
“Lower yields reflect the abundance of liquidity and weak news about the world economy, including in advanced economies,” said Shang-Jin Wei, ADB’s Chief Economist.
“As we are seeing some re-flow of international capital back to emerging market economies, it is important to watch out for risks of over-leveraging in these countries,” he said.
The report noted that recent actions by central banks in major industrialized countries, including the United States, Japan and in the Eurozone have signaled to investors that slower growth is likely to continue in the near term.
However, a gradual and cautious hike in US rates going forward, combined with the market factoring in a normalization of US monetary policy, should limit any sharp selloff of East Asian bonds, despite an uptick in risks to the region.
Moving forward, the report noted risks to East Asian bond markets across a number of areas, including a US Federal Reserve rate hike, which could generate outflows from the bond market; further strengthening of the US dollar, which could raise funding challenges for companies in Asia that have borrowed in the currency; and a broader loss of confidence in emerging markets by foreign investors, amidst weak global economic activity.
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.