LOCAL currency bond yields (LCY) benefitted from the high-interest rates in the Philippines and other parts of the region, according to the Asian Development Bank (ADB).
In its latest Asia Bond Monitor, the ADB said the hawkish stance of the Bangko Sentral ng Pilipinas (BSP) led to a 30-basis point increase in the 2-year government bond yields and 35 bps for the 10-year bond yields.
The bond yield in the Philippines for the 2-year government debt papers was the third-highest among select emerging East Asian Markets monitored by the ADB. The yield for the 10-year bonds was the second-highest among the markets.
According to the report, the increase in yields was driven by the BSP’s hawkish monetary policy stance “to bring inflation down within its target range of 2 percent–4 percent.”
“The central bank is expected to keep its monetary tightening policy until inflation is brought down within the government’s target even though inflation slowed to 4.9 percent year-on-year in October,” the report added.
The ADB noted that consumer price inflation increased in August to 5.3 percent from the 4.7 percent in July. It further increased to 6.1 percent in September, driven by high food and energy prices.
The ADB noted that the BSP’s decision to raise rates by 25 bps in an off-cycle meeting last month. This placed the country’s target reverse repurchase (RRP) rate to 6.5 percent.
“We see softer inflation in emerging East Asia in the next few years, which is a welcome development as regional central banks may have more room to support economic growth,” ADB Chief Economist Albert Park said.
“At the same time, they should remain vigilant against financial turbulence in the face of interest rates remaining elevated for a longer period. Strengthening economic fundamentals will safeguard financial stability and support growth,” Park added.
The ADB said that in the third quarter of this year, the Philippine LCY bond market increased 1.8 percent quarter-on-quarter (q-o-q), driven by higher issuances from the government and the BSP.
Outstanding central bank securities grew 44.8 percent q-o-q as issuance increased during the quarter to mop up excess liquidity in the market, which was brought about by the BSP’s reduction of the reserve requirement ratio and the expiration of pandemic-related relief measures on June 30.
The ADB noted that treasury and other government bonds outstanding posted slower growth of 0.3 percent on a quarterly basis versus 2.3 percent in the previous quarter, as the government failed to meet its borrowing plan for the quarter due to investors’ demand for higher yields.
The data also showed that corporate bond stock contracted 2.4 percent q-o-q to a size of P1.6 trillion, driven by reduced issuance during the quarter.
Total corporate bonds outstanding were dominated by the property sector with a 31.9-percent share of the total LCY corporate bonds outstanding in the third quarter of 2023.
Meanwhile, the ADB said bond issuance in emerging East Asia grew 8.6 percent from the previous quarter to $2.5 trillion in the third quarter of this year.
Local currency bonds outstanding in the region increased 2.5 percent to $23.5 trillion. Government bonds expanded 3 percent amid increased issuance and accounted for 62.4 percent of the region’s total local currency bonds outstanding. Corporate bonds outstanding rose 1.5 percent.
The data also showed sustainable bonds outstanding in the Association of Southeast Asian Nations (Asean) region plus the People’s Republic of China, Japan and the Republic of Korea (Asean+3). These bonds—to finance projects and programs with positive environmental and social impacts—reached $734.1 billion at the end of September, following robust issuance of $57.3 billion in the third quarter.
The Asean+3 accounted for 36.3 percent of the total global sustainable bond issuance in the third quarter of 2023, making it the second-largest regional sustainable bond market in the world. Asean markets contributed 7.4 percent of the total Asean+3 issuance.