BOND yields fell in the Philippines in the second quarter on the back of policy rate cuts made by the Bangko Sentral ng Pilipinas amid easing inflation, according to the Asian Development Bank (ADB).
In the latest Asia Bond Monitor report, the Manila-based multilateral said the decline in yields were more pronounced for tenors of 1 year and less at an average of 195 basis points (bps).
ADB also said yields for bonds with tenors of 2 to 25 years fell an average of 143 bps. The 20-year tenor fell 100 bps.
“Easing inflation, lower-than-expected second quarter (Q2) gross domestic product growth results, and statements by the central bank governor bolstered expectations of further rate cuts by the BSP during the remainder of the year,” the report stated.
“A slowdown in US economic growth and continued trade tensions with the People’s Republic of China have led to expectations of a more neutral stance or the possibility of another rate cut by the Federal Reserve. These developments have also driven the downward trend in Philippine yields,” it added.
The ADB also said bond yields have been on a downtrend since June due to expectations of a policy rate cut amid easing inflation.
Further, the remaining 100 bps in the 200-bps cut in reserve requirement ratios (RRR), announced by the BSP in May, also contributed to additional liquidity in the market and boosted demand for government securities.
Meanwhile, ADB said local currency bonds outstanding in emerging East Asia amounted to $15.3 trillion at the end of June, up 3.5 percent in US dollar terms from the end of March this year and 14.2 percent higher than the end of June 2018.
Bond issuance in emerging East Asia reached $1.6 trillion in the second quarter. This was 12.2 percent higher than in the first quarter due to strong issuance of government bonds and a recovery in corporate bonds issuance.
At the end of June, there were $9.4 trillion in local currency government bonds outstanding, 13.6 percent higher than at end-June 2018. The stock of corporate bonds was $5.8 trillion, up 15 percent compared with end June 2018.
“Foreign investment in emerging East Asia remains stable but there are still considerable potential risks. Financial stability in the region could be undermined if global investors change their views on emerging markets,” said ADB Chief Economist Mr. Yasuyuki Sawada. “Governments in the region would do well to continue to deepen local currency bond markets so they can act as a reliable local source of funding.”
The Asia Bond Monitor includes three discussion boxes on the impact of US monetary policy uncertainty in emerging market currencies; the importance of domestic capital markets as a source of financing for corporates in emerging markets; and the challenges faced by financial markets on the use of other benchmark interest rates as they transition away from the widely used London Interbank Offered Rate, or Libor.