Market Summary

Yield Movements

Between 1 March and 15 May, local currency (LCY) government bond yields in the Philippines rose for all tenors except the 3-year, 7-year, and 10-year maturities, which fell 36 basis points (bps), 94 bps, and 77 bps, respectively. According to the Bureau of the Treasury, interest rates continued to trend upward as some investors anticipate additional rate hikes by the Bangko Sentral ng Pilipinas following the increase on 10 May. Moreover, demand for higher rates for longer tenors reflects investor concerns about inflation.

Size and Composition

Total LCY bonds in the Philippines reached PHP5,593 billion (USD107 billion) at the end of March on growth of 2.1% quarter-on-quarter and 13.1% year-on-year. The increase in outstanding bonds in the LCY bond market is supported by increases in both the government and corporate bond segments. At the end of March, government bonds represented 80.1% of total outstanding bonds, while corporate bonds comprised only 19.9%.

Policy, Institutional and Regulatory Developments

The Government of the Philippines plans to issue a total of PHP325 billion in the second quarter of 2018, comprising PHP195 billion of Treasury bills and PHP130 billion of Treasury bonds. Auctions in the second quarter of 2018 will be conducted on a weekly basis. The increase in domestic borrowing during the past few quarters has funded the growth of the national budget and supported the infrastructure spending program of the current administration.