Market Summary

Yield Movements

Between 1 June and 15 August, the yields of Philippine local currency (LCY) bonds of all tenors increased except for the 3-month tenor, which decreased 58 basis points. Uncertainties weighed heavily on investor decisions, resulting in a preference for short-dated Treasury bills as investors chose caution while awaiting the outcomes of domestic and international events. The higher yields also point to the risks that investors see in the long-term. Domestically, buyers were mindful of the Philippines’ high inflation and slowing economic growth, coupled with negative sentiments in the foreign exchange market. Investors are also anticipating additional rate hikes by the Bangko Sentral ng Pilipinas (BSP). Internationally, rising oil prices and the trade war between the People’s Republic of China and the United States affected investor sentiments.

Size and Composition

Growth in the Philippines’ LCY bond market eased to 2.6% quarter-on-quarter (q-o-q) in Q2 2018 from 4.6% q-o-q in Q2 2017. Total LCY bonds amounted to PHP5,741 billion (USD108 billion) at the end of Q2 2018, up from PHP5,593 billion at the end of Q1 2018. The increase was supported by growth in both government and corporate bonds, with the former comprising 80% of total outstanding bonds.

Policy, Institutional and Regulatory Developments

On 18 May, the BSP announced that the conversion of foreign currency loans to pesos and the transfer of such loans to regular banking unit books no longer requires prior central bank approval, provided that the concerned bank understands the risks inherent in such actions.