The Philippine government bond yield curve flattened from the belly through the end of the curve between the beginning of the year and end-October. Yields for all tenors declined year-to-date, with the exception of the 4- and 7-year tenors, due to a lack of liquid benchmarks. Spreads between 2- and 10-year yields widened to 323 basis points (bps) in October from 245 bps in June after the yield on the 2-year tenor fell almost 140 bps.

Total local currency bonds outstanding grew to PHP3.3 trillion (US$74.5 billion) at end-September, up 2.7% y-o-y.  Government bonds (including treasury bills and government-controlled companies) rose to PHP2.9 trillion at end-September, while corporate bonds grew to PHP409 billion.

In 3Q11 significant new government bond issuances included the 10.5- and 20-year tresury bonds totaling PHP323 billion from the July bond exchange.  Significant corporate issues in 3Q11 included the PHP3 billion notes of Filinvest Land Inc (FLI) and PHP5 billion notes of SM Investments Corp (SMIC).

The Bureau of the Treasury (BTr) issued PHP100 billion of 10- and 15-year Retail Treasury Bonds (RTBs) in October. Of the total amount, PHP54.97 billion of 10-year RTBs was issued and PHP55.12 billion of 15-year RTB was sold.

Bangko Sentral ng Pilipinas imposed stricter rules on hedging instruments, particularly non-deliverable forward (NDFs) contracts, to reduce speculation in the foreign exchange market. The market risk capital charge to be used in the capital adequacy ratio (CAR) computation for banks for the net open position of NDF contracts will be raised from 10% to 15% effective 1 January 2012.