Market Summary

Yield Movements

Between 31 August and 15 October, the yields of Philippine local currency (LCY) bonds of all tenors jumped an average of 189 basis points (bps). The 7-year maturity increased the most (250 bps), while the 1-year tenor registered the smallest increase at 116 bps. The yield spread between 2-year and 10-year government bonds contracted 50 bps. The jump in interest rates was spurred by concerns over high inflation and expectations of additional policy rate hikes before the end of the year from both the Bangko Sentral ng Pilipinas and the United States Federal Reserve at their next respective monetary policy meetings. Given these expectations, investors preferred short-term tenors over long-term tenors. The Bureau of the Treasury frequently rejected Treasury bond bids as investors asked higher than expected rates.

Size and Composition

The Philippines’ LCY bond market marginally expanded 0.9% quarter-on-quarter in the third quarter of 2018, compared with 0.8% quarter-on-quarter growth during the same period in the previous year. Total LCY bonds amounted to PHP5,792 billion (USD107 billion) at the end of September, up from PHP5,741 billion in the second quarter of 2018. The increase was supported by growth in the corporate bond market.

Policy, Institutional and Regulatory Developments

On 10 August, the Bangko Sentral ng Pilipinas enhanced rules on bond issuances in order to develop the LCY bond market. Aside from complying with the Securities Regulations Code, universal banks, commercial banks, and quasibanks need to satisfy additional criteria to be eligible to issue bonds and commercial paper. The additional rules aim to help promote an efficient debt market that protects investors.

On 20 August, the Bureau of the Treasury launched the National Registry of Scripless Securities for the submission, confirmation, and settlement of government securities auctions by government securities-eligible dealers. The online platform will promote efficiency in processing bids during auctions for government securities.