HIGH interest rates caused the growth of total outstanding bonds in the region to slow in June, according to the Asian Development Bank (ADB).
Based on the Asia Bond Monitor, the ADB said total outstanding local currency (LCY) bonds only increased two percent to $23.1 trillion in the second quarter 2023.
In the Philippines, the local currency-bond market growth was slower at 1.3 percent to $211.8 billion at the end of June 2023 from the previous quarter.
“Asia’s banking sector showed resilience during the recent banking turmoil in the US and Europe; but we’ve seen vulnerabilities and defaults among both public and private borrowers since last year,” said ADB Chief Economist Albert Park. “Higher borrowing costs pose a challenge especially for borrowers with weak governance and balance sheets.”
Based on the report, Treasury and other government bonds, which account for 82.4 percent of the total debt stock, grew 2.3 percent quarter on quarter in the second quarter of 2023.
ADB said this was due to issuances that exceeded maturities, while central bank securities contracted 15.8 percent on a quarter on quarter basis due to a decline in issuance in April to June period amid easing inflation.
The report also stated the corporate bond market, which accounted for 13.6 percent of the total debt stock, rebounded 1.2 percent quarter on quarter in the second quarter of 2023.
The Manila-based multilateral development bank said this was due to the large volume of issuances during the quarter, a reversal from the 2.2 percent quarter on quarter contraction in the first quarter of 2023.
ADB said 81 percent of the total corporate bonds outstanding at the end of the second quarter of 2023 was dominated by the property, banking, and holding firms sectors.
“Issuances of treasury and other government bonds exceeded maturities, even as central bank securities contracted. A large volume of issuances helped corporate bonds rebound,” ADB said about the LCY bond market in the Philippines.
ADB said, however, the Philippines experienced some of the region’s largest increases in the 2-year and 10-year yields.
The report noted that the two-year tenor rose 33 basis points (bps) and the 10-year rising 55 bps, driven by elevated inflation.
“Government bond yields rose for most tenors between 1 June and 31 August, influenced by a still elevated inflation and a slower-than-expected economic growth in the second quarter that dampened investor sentiment. Only the 1-month and 3-month tenors posted declines during the review period,” ADB said.
Meanwhile, ADB the softening inflation in the past months allowed most central banks in the region to hold off on further interest rate hikes, and some have started lowering rates to boost economic growth.
However, ADB warned that the elevated price pressures, solid job market, and robust economic performance in the United States could lead to further interest rate increases by the US Federal Reserve.
“A faster-than-expected decline in inflation in advanced economies, combined with a cooling in the job market and/or lessened financial stability and growth concerns, might lead to less hawkish monetary stances,” ADB said.
Sustainable bonds in ASEAN plus the PRC, Japan, and the Republic of Korea (ASEAN+3) expanded 5.1 percent from the previous quarter to $694.4 billion, accounting for 19.1 percent of global sustainable bonds outstanding.
ASEAN+3 remains the world’s second-largest regional sustainable bond market after the European Union, although the segment only accounts for 1.9 percent of the group’s overall bond market.