Demand for liquid investments boosts Philippines bond market in Q3

MANILA, Philippines — The domestic bond market grew strongly in the third quarter amid high liquidity in the financial system and investor appetite for liquid investments amid the pandemic, according to the Asian Development Bank (ADB).

In its latest Asian Bond Monitor, ADB said the total outstanding local currency bond issuance in the country rose to P8.1 trillion in the quarter ending September, up by 8.8 percent quarter-on-quarter and by 21.5 percent year-on-year.

The expansion in the third quarter from P7.5 trillion in the second quarter was supported by both the government and corporate segments on the back of higher issuance volumes.

In the third quarter, government bonds comprised nearly 80 percent of the local bond market, largely supported by the issuance of more Treasury bonds meant to raise more funds for the government’s pandemic response, as well as the issuance of securities by the Bangko Sentral ng Pilipinas (BSP).

The local corporate bond market rebounded in the third quarter to expand by 3.8 percent quarter-on-quarter after contracting by 0.4 percent in the second quarter.

Outstanding corporate bonds reached P1.6 trillion, ending the third quarter as firms issued more bonds as the economy gradually reopened.

The banking sector comprised the largest segment of the corporate bond market, followed by properties and utilities.

“As the economy gradually reopened, even amid continued uncertainty from the COVID-19 pandemic, firms returned to tap the capital market to fund their business operations and recovery plans,” the report said.

“The timing is favorable as firms can take advantage of the low interest-rate environment and abundant liquidity in the market.”

Notable debt issuances in the third quarter of 2020 were mostly from the banking sector with the purpose largely to support their lending activities.

BDO Unibank had the largest bond issuance during the quarter with a P36 billion, two-year bond.

Another notable bond issuance was the Bank of the Philippine Islands’ landmark COVID-19 response bond, which raised P21.5 billion. It was the Philippines’ first bond issued as a direct response to the pandemic.

The proceeds will be used to support lending activities to eligible micro, small, and medium-sized enterprises to sustain or restart their operations amid financial difficulties caused by the pandemic.

Most of the local currency bonds issued in the third quarter were gobbled up by banks and investment houses, as well as contractual savings and tax-exempt institutions.