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Bond yields decline steepest in PHL–ADB


The decline in bond yields in the Philippines was the steepest recorded in emerging East Asian economies, according to the Asian Development Bank (ADB).

Based on the June 2020 Asia Bond Monitor, bond yields for the 2-year and 10-year government bonds fell 133 basis points (bps) and 116 bps, respectively between February and May 2020.

The ADB noted that securities with 6-month tenors or less shed an average of 77 bps from their yield while longer-term debt paper (20- and 25-year tenors) dropped 52 bps on average.

“LCY bond yield declines were also driven by the dovish stance of the United States (US) Federal Reserve and other major central banks,” ADB said.

“The Federal Reserve cut its policy rate to almost zero in March to shield the domestic economy from the negative impact of the Covid-19 pandemic. This resulted in US Treasury yields tumbling, which Philippine bond yields often track to a degree,” it added.

In the first quarter, the ADB said the country’s total issuance reached P718.2 billion more than doubled issuance volume in the fourth quarter of 2019 at P272.2 billion.

Data showed this is composed of 3-year RTBs amounting to P310.8 billion, the highest volume recorded for a Retail Treasury Bond (RTB) offering.

In the first quarter of 2020, the government’s issuance of Treasury bonds amounted to P414.6 billion and Treasury bill issuance amounted to P303.6 billion.

“The increased borrowing was programmed to take advantage of liquidity in the local market as a result of the reserve requirement ratio cuts in Q4 [fourth quarter] 2019 by the BSP [Bangko Sentral ng Pilipinas], as well as of lower interest rates,” ADB said.

“(The) amounts represented a significant increase from their respective issue volumes in the previous quarter. Proceeds from the government’s aggressive first quarter 2020 debt sales will be used for general budgetary purposes and for planned increased spending in 2020,” the report added.

The central bank cut the policy rate by 50 bps on 17 April during an off-cycle meeting, bringing the overnight reverse repurchase rate to 2.75 percent, less than 1 month after the BSP cut the policy rate by 50 bps on 19 March.

The BSP has also aggressively cut the key rate by 125 bps in 2020 in an effort to keep the economy afloat during the pandemic. However, ADB said already hinted at a pause in monetary policy easing to assess the impact of its actions.

The Manila-based multilateral development bank said the coronavirus disease 2019 (Covid-19) pandemic is to blame for the drag on local currency bond markets in emerging East Asia. Investment sentiment also continues to wane and containment measures limit economic activity.

Data showed LCY bonds outstanding in emerging East Asia totaled $16.3 trillion at the end of March, up 4.2 percent from December 2019 and 14 percent higher than in March 2019.

Bond issuance in the region reached $1.7 trillion in the first quarter of 2020, up 19.7 percent from the fourth quarter of 2019.

Emerging East Asia’s local currency bonds outstanding as a share of gross domestic product rose to 87.8 percent at the end of March.

“Governments and central banks in the region have taken significant measures to mitigate the impact of Covid-19 through fiscal stimulus packages and eased monetary policies. But more needs to be done to strengthen the region’s economies and financial markets,” ADB Chief Economist Yasuyuki Sawada said. “While overall investment sentiment is still down, there are signs of recovery in some economies as quarantine measures are strategically relaxed.”

The Asian Bond Monitor reports on LCY bond markets in emerging East Asia which is comprised of the People’s Republic of China (PRC); Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Vietnam.

ADB said the PRC remains the largest bond market in emerging East Asia, accounting for 76.6 percent of the total bond stock at the end of the first quarter of 2020.

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