Market Summary

Yield Movements

The yields of local currency (LCY) government bonds in the Philippines fell for all tenors between 15 June and 15 August except for bonds with 7-year and 10-year maturities. On average, yields dropped 10 basis points (bps) for all bonds that saw declines, while yields for 7-year and 10-year maturities climbed 4 bps and 7 bps, respectively. The downward movement of yields was prompted by high liquidity in the market and sustained demand for government bonds, along with the developments during the review period which include easing consumer prices that dissipated inflation concerns, the central bank’s continued accommodative monetary policy stance, and the reimposition of the strictest mobility controls in early August to curb the spread of the delta variant of the COVID-19 virus which threatened recovery prospects.

Size and Composition

The Philippine LCY bond market expanded in the second quarter of 2021 by 2.5% quarter-on-quarter (q-o-q) to reach PHP9,351.0 billion (USD191.6 billion) at the end of June. The expansion was entirely driven by the government segment as the corporate segment saw contraction during the quarter. The government bond market grew 3.9% q-o-q with the continued fundraising for the pandemic response, while debt outstanding in the corporate sector declined by 3.9% q-o-q underpinned by the maturation of bonds amid low issuance volume during the quarter. On an annual basis, the LCY bond market expanded 25.1% year-on-year. Government bonds accounted for 83.8% of the total bond market at the end of June, while corporate bonds accounted for 16.2%.

Policy, Institutional, and Regulatory Developments

On 10 August, the Bangko Sentral ng Pilipinas (BSP) amended the foreign exchange (FX) regulations to allow access to FX without prior BSP approval in select trade and nontrade current account transactions. According to the BSP, the amendment will promote ease of use of FX resources of the banking system and further simplify procedures and documentary requirements for FX transactions. These transactions include (i) the sale of FX by banks without prior BSP approval involving payments for e-commerce; living allowance and medical expenses of dependents abroad; and importation of goods with services covered by engineering, procurement, and construction contracts among others; (ii) FX derivatives transactions to be entered into by nonbank government entities; and (iii) use of peso receipts relating to trade transactions to fund the peso deposit accounts of nonresidents. The reform will take effect 15 banking days after its publication.