Market Summary

Yield Movements

Between 1 March and 8 May, the yields of Philippine local currency (LCY) bonds for tenors less than 6 months increased, while maturities of 1 year to 25 years declined. The overall decline in interest rates may be attributed to the policy rate cut decision by the Bangko Sentral ng Pilipinas, and the upgrade in Standard & Poor's credit rating for the Philippines.

Size and Composition

The Philippines' LCY bond market expanded 8.0% quarter-on-quarter (q-o-q) in the first quarter of 2019. Total LCY bonds amounted to PHP6,588 billion (USD125 billion) at the end of March, up from PHP6,098 billion at the end of the fourth quarter of 2018. The increase was supported by growth in both the government and corporate bond markets. The amount of LCY government bonds outstanding stood at PHP5,203 billion at the end of March on growth of 8.8% q-o-q, supported by Treasury bills, while LCY corporate bonds grew 5.4% q-o-q during the first quarter of 2019, with total corporate bonds outstanding increasing to PHP1,385 billion from PHP1,315 billion in the previous quarter.

Policy, Institutional and Regulatory Developments

In May, the Bangko Sentral ng Pilipinas announced that it will cut the reserve requirement ratio of universal and commercial banks from 18% to 16% in three phases: 100 basis points (bps) will be cut on 31 May, 50 bps on 28 June, and 50 bps on 26 July. The decision was made amid the Philippines' low inflation environment and lower-than expected economic growth.