Robust fundamentals point to a bond rally

Waiting to exhale. That’s the feeling.

Inflation in the Philippines is below the central bank target and is expected to remain target consistent over the policy horizon. Add to that a rather dovish central bank governor and you have a perfect backdrop for bond markets right? Well, so far, not exactly.

And as bond investors, both here and abroad, wait for the local bond market to finally enjoy a fundamental rally, they collective hold their breaths, and wait to exhale.

There are several constraints to the bond market rally. One can point to whipsawing US treasuries or chunky onshore maturities. But for me, there’s possibly one clear cut reason as to why we’ve yet to heave that sigh of relief that would finally nudge the Philippine bond market towards momentum. And it’s so important that people have apparently stopped talking about it.

Secretary Recto has talked much about efforts to bring the Philippines into the JP Morgan bond index over the past few months. Post our first Singapore roadshow in 2024, we covered the potential inclusion into the EMBI, a development that would attract structural inflows to the Philippines, thereby spurring a potential rally in local bonds and the peso spot market.

Since that time, we have seen several developments that would suggest we could be closer to entry. Philippine authorities appear to be in constant communication with JP Morgan and even market participants, engaging in two-way dialogue to understand ways to improve the country’s chances of inclusion.

Add to that, the constant offshore buzz surrounding the RPGB (Republic of the Philippines Government Bonds) market is difficult to ignore with the tone shifting to “it’s a matter of time” from, it would be nice if.

But taking a step back from fantasizing about potential bond index inclusion, let’s bring that thought back to earth and relabel it as “it would be nice” while focusing on the fundamentals behind the rally that has yet to come.

A dovish central bank alongside stable inflation over the next two years all figure into making bonds an attractive pick in the near term. Add to that favorable supply dynamics post the recent retail treasury bond (RTB) issuance and we have more than enough reasons to believe we could see a decent rally before we call 2025 a year. Once again, looking forward to bond inclusion does feel like we’re all waiting to exhale, but beyond that “nice to have” the overall bond (and currency) story do look quite compelling in the second half of the year.

NICHOLAS MAPA is Metrobank’s Chief Economist, Market Strategist, and Head of the Research and Market Strategy Department in the Financial Markets Sector. He graduated from the University of Asia and the Pacific (UA&P) with an undergraduate degree in Humanities and a Master of Science (MSc) in Industrial Economics. He also completed an MA in Economics from Vanderbilt University and an MBA from the Kelley School of Business at Indiana University. He travels regularly with his family, enamored by culture and history. An avid learner, he also reads extensively.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)