ADB: Philippines bond market grows at faster pace in Q2

The Philippine bond market experienced accelerated growth in the second quarter, compared to the preceding quarter, according to the Asian Development Bank (ADB). The report revealed that the country’s outstanding local currency debt securities increased by 3.3% to P14.5 trillion in the second quarter, from the previous quarter.

This growth rate was slightly higher than the 2.8% increase in the first quarter. However, upon excluding debt securities with tenors of one year or less, the local currency bond market expanded by 2.7% quarter-on-quarter to P13.2 trillion, which was a slower pace than the 3.5% expansion in the previous quarter. Government bonds and corporate bonds both exhibited slower expansions in the second quarter.

Government bonds expanded by 2.6% compared to the 3.4% growth in the previous quarter, while corporate bonds grew by 3.2% compared to 4.4% previously. Furthermore, the ADB reported that bond issuance dwindled in the second quarter, dropping by 45% to P476.2 billion after surging by 212% in the previous quarter. This decline in bond activity was attributed to a high base effect resulting from front-loaded government borrowing.

Government bond issuance fell by 46% quarter-on-quarter, while corporate issuance decreased by 41%. Additionally, yields on Philippine local currency government debt securities decreased by 21 basis points on average from June to August. This decline was primarily concentrated in tenors of one year or longer. The ADB noted that despite consecutive rate hikes of 50 basis points in June and August, moderating inflation and weakening growth exerted downward pressure on yields.

Inflation decreased to 6.1% in August from 6.2% in July, with an average inflation rate of 5.2% from January to August, surpassing the government's target range of 2-4%. In terms of investor groups, banks and other financial institutions collectively held 61.2% of total holdings in June, up from 58.1% in May. Domestic investors owned 96% of the country's local currency debt securities.