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The Philippine bond market expanded in the second quarter as the government continued to borrow funds for its response to the 2019 coronavirus disease (COVID-19), the Asian Development Bank (ADB) reported on Friday.
ADB’s latest Asia Bond Monitor report showed that the local currency bond market grew 11.5% year-on-year to P7.477 trillion ($ 150 billion) in the April-June period, while growing by 5.2 % quarter to quarter.
“The expansion was driven by the government segment given the contraction in the corporate segment during the quarter,” the ADB said.
At the end of June, the domestic bond market consisted of 79% government bonds and 21% corporate bonds.
Outstanding government securities issued totaled P5.904 trillion at the end of June, a year-on-year increase of 11.6% and 6.8% from the previous quarter.
“Treasury bonds drove the increase in market size as the government increased its borrowing to fund fiscal stimulus measures to support economic recovery amid the continuing COVID-19 pandemic,” the ADB said.
“There was a substantial increase in outstanding Treasury bills, with quarter-on-quarter growth of almost 50% due to a higher volume of issuance during the quarter. Treasury bonds grew 2.8% quarter-on-quarter, although slower compared to 6.8% quarter-on-quarter in the first quarter of 2020, while outstanding debt from government-related entities declined marginally due to bond maturities ”He added.
Loans in the domestic market by the Treasury Office decreased 6.9% quarter-on-quarter to P668.6 billion. The ADB said the drop was caused by aggressive borrowing from the government in the first quarter through retail Treasuries in the amount of P310.8 billion.
“Without RTBs, bond issuance in the second quarter of 2020 was higher than in the first quarter of 2020, as the government increased its borrowing plan to finance efforts to cushion the economy against the negative impact of the pandemic. of COVID-19, “said the ADB.
Outstanding debt in the corporate sector decreased 0.4% quarter over quarter to P1.573 billion from a 5% increase last year.
However, corporate bond issuance slumped 81.3% quarter-on-quarter as business activities slowed due to tighter lockdowns and looming risks. Only three companies raised funds during the quarter.
“The weak issuance activity of the corporate sector can be attributed to the bleak economic and trade outlook due to the ongoing pandemic. In the midst of the persistent uncertainty and the paralysis of economic activities due to the strict quarantine measures in force during the entire second quarter of 2020, companies suspended expansion and issuance plans to properly assess the situation, even with interest rates low and the market flooded with liquidity, “said the ADB. He said.
In emerging East Asian countries, the Philippine bond market was the third fastest growing in quarter-on-quarter terms, behind Indonesia’s 7.8% and China’s 5.6%. The subregion is made up of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand, and Vietnam.
The subregion’s bond market grew 15.5% year-on-year to $ 17.2 trillion in the second quarter and expanded 5% compared to the previous quarter.
The ADB said that the Philippines issued the fewest amount of government bonds in the second quarter after Hong Kong and Malaysia and ahead of Vietnam at the bottom.
Philippine government bonds saw the biggest drop in foreign investment due to unstable conditions in the country and lower interest rates from the central bank.
“Investors reduced their risk exposure during the quarter, prompting continued fund outflows amid growing uncertainty from the pandemic and a low interest rate environment, as Bangko Sentral ng Pilipinas (BSP) unexpectedly cut the rate policy in June by 50 basis points, ”the ADB said.
Foreign holdings in Philippine government bonds fell to 1.9%, below rates in Thailand, Vietnam and Indonesia. – KKTJ
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