Philippines bond market grows 8% in Q1

MANILA, Philippines  — The domestic bond market grew by 7.9 percent in the first quarter as both government and corporate issuances rose on the back of positive investor sentiment prior to the declaration of a pandemic, according to the latest Asian Bond Monitor of the Asian Development Bank (ADB).

The size of the local currency bond market climbed to P7.106 trillion ($140 billion) in the first quarter of 2020 from P6.588 trillion ($125 billion) in the first quarter of 2019.

Quarter-on-quarter, growth was placed at 6.9 percent from outstanding issuances of P6.646 trillion ($131 billion) in the fourth quarter of 2019.

Outstanding government bonds rose by 7.5 percent quarter-on-quarter and 6.2 percent year-on-year to P5.526 trillion ($101 billion).

“The increase in the market size was due to the Bureau of Treasury’s enlarged borrowing plan from the local market in the first quarter of 2020, which was upped by the issuance of retail Treasury bonds,” the ADB report said.

Treasury bills and bonds outstanding grew 14.5 percent and 6.8 percent, quarter-on-quarter, respectively.

“The increased borrowing was programmed to take advantage of liquidity in the local market as a result of the reserve requirement ratio cuts in the fourth quarter of 2019 by the BSP, as well as of lower interest rates,” ADB said.

ADB said the Bureau of Treasury may adjust its borrowing program upward given the fiscal measures being taken to contain the impact of the pandemic on the economy.

“The government must ensure that it has the resources to prop up the economy and support growth in the near term,” the report said.

The local corporate bond market likewise expanded by five percent quarter-on-quarter and by 14 percent year-on-year to P1.579 trillion ($31 billion) in the first quarter as companies capitalized on positive investor sentiment.

The combined outstanding bonds of the top 30 issuers in the corporate market amounted to P1.388 trillion, or 87.9 percent of the total debt stock in the corporate segment.

The top 30 issuers comprised 25 listed firms and five unlisted firms. Nearly half of the outstanding bonds were from the banking sector, totaling P609.2 billion. Metropolitan Bank, BDO Unibank, Ayala Land and SM Prime Holdings had the largest amount of bonds outstanding.

“The issuance growth came on the back of strong economic prospects prior to the outbreak of COVID-19 as corporates sought to capitalize on investor optimism by tapping the bond market,” ADB said.

“The reserve requirement ratio cuts in Q4 2019, with expectations of further reductions, also unleashed liquidity that boosted demand in the market,” it added.

Notable issuances during the first quarter of 2020 included BDO Unibank’s P40.1 billion 2.5-year bond in February, which was the single-largest bond issuance from the private sector in the Philippines to date. It was met by strong demand and fetched a coupon rate of 4.41 percent.

Arthaland’s maiden issuance of a five-year P3 billion green bond with a 6.35 percent coupon rate was also among the largest.