Philippines’ Q4 bond market growth slows

The Philippine bond market’s growth slowed in the fourth quarter of 2023 due to contractions in central bank and corporate securities amid large debt maturities, as well as a decline in issuances.

Outstanding local currency (LCY) bonds grew by 1% quarter on quarter (q-o-q) to USD 217 billion or approximately PHP 12.14 trillion in the October-to-December period, slower than the 1.8% expansion seen in the third quarter, the Asian Development Bank’s (ADB) ​​Asia Bond Monitor report for March 2024 showed.

The Philippine bond market’s growth was the second slowest among eight economies in Emerging East Asia that posted quarter-on quarter expansion, beating only Hong Kong’s 0.3%. Indonesia and China’s bond markets posted the fastest growth at 2.7%, better than the 2.5% growth in outstanding LCY bonds in the entire Emerging East Asia region, while Thailand’s and Vietnam’s markets contracted by 0.5% and 0.4%, respectively.

Year on year, the Philippine bond market grew by 7.4%.

Broken down, outstanding government and Treasury bonds grew by 2.1% to USD 178 billion in the fourth quarter, faster than the 0.3% expansion in the previous three-month period and making up 82.1% of the total debt stock at end-2023.

“Despite a contraction in issuance, government bonds grew due to a low volume of maturities during the quarter,” the ADB noted.

Meanwhile, outstanding central bank securities declined by 6.2% quarter on quarter to USD 11 billion as maturities exceeded total issuances. These comprised 5.3% of the period’s total.

Corporate bonds also contracted by 2.6% to USD 27 billion or PHP 1.5 trillion amid a large number of bond maturities. Still, these made up 12.6% of the Philippines’ total LCY debt stock in the period, with 31.6% coming from the property sector.

Meanwhile, LCY bond issuances in the Philippines contracted by 4.4% quarter on quarter but rose by 5.5% year on year to USD 41 billion at end-December, the ADB said.

“Issuance of Treasury and other government bonds contracted 26.2% q-o-q in Q4 2023, as the government reduced borrowing by 73% to PHP 60 billion in December amid a shrinking budget deficit that eased pressure on the government’s debt financing,” it said.

Meanwhile, issuances of central bank securities grew by 0.9% to USD 32 billion in the fourth quarter as the regulator siphoned off excess liquidity to help bring elevated inflation down.

Corporate bond issuance likewise jumped by 85.5% in the quarter as it came from “a relatively low base” in the previous quarter.

“However, total LCY corporate bond issuance in 2023 only reached PHP 205.5 billion, which was 58.6% lower than in 2022 amid the uncertain environment triggered by the aggressive rate hikes of the Bangko Sentral ng Pilipinas beginning in May 2022,” the ADB said.

“Consequently, only five firms tapped the bond market for funding during the quarter, with the largest issuance coming from the Bank of the Philippine Islands whose debt sales amounted to PHP 36.6 billion,” it added.

The multilateral lender said the emerging East Asian bond market grew by 2.5% quarter on quarter to USD 25.182 trillion as of December, mostly driven by government bonds. 

“Outstanding government bonds rose 3.9% q-o-q in Q4 2023, despite reduced issuance, due to a low volume of maturities in most regional markets. Government bonds accounted for 61.2% of total LCY bonds outstanding at the end of December,” it said.

Year on year, the regional market expanded by 9.2%.

“The region’s financial conditions were buoyed by robust economic growth, the expected ending of monetary tightening, and continued disinflation trends. At the same time, the increased likelihood of a delay in monetary easing and a strong US economic performance supported the US dollar, leading to a gross-domestic-product-weighted average depreciation of 1% for regional currencies versus the dollar. Most regional short-term bond yields also declined during the review period, but long-term bond yields rose slightly, tracking movements in advanced economies,” the ADB said.

“Risks to regional financial conditions remain tilted to the downside, largely due to uncertainties over the timing of US monetary policy easing. Possible disruptions to disinflationary momentum and spillover effects from the economic slowdown and deflation in the PRC (People’s Republic of China) could heighten the risk outlook,” it added. — A.M.C. Sy