THE PHILIPPINE bond market contracted in the fourth quarter of 2024 due to a decline in issuances as the government front-loaded its borrowings, the Asian Development Bank (ADB) said in a report.
The ADB’s March 2024 Asia Bond Monitor report showed that outstanding local currency (LCY) bonds declined by 0.6% to $223 billion (P12.9 trillion) in the fourth quarter of 2024 versus the 3.8% growth in the prior three-month period.
The Philippine bond market was one out of just two markets out of the 10 making up the emerging East Asia region that posted quarter-on-quarter (q-o-q) contractions, with the other being Thailand (-0.1%).
Still, year on year, the country’s outstanding LCY bonds expanded by 7.5%.
“Contractions in the stock of government bonds and central bank securities dragged down the LCY bond market at the end of December. The decline was driven by reduced issuance from the government and the central bank during the quarter,” the ADB said.
“LCY bond issuance contracted in the fourth quarter on reduced issuance for all bond segments. Total LCY bond issuance fell 19.2% q-o-q to P2.4 trillion ($41 billion),” it added.
Meanwhile, year on year, LCY bond issuances grew by 3.8%, the report showed.
Outstanding Treasury and other government bonds slipped by 0.1% from the previous quarter to $187 billion, making up 83.5% of the total, while outstanding central bank securities went down by 11.7% to $14 billion.
“The issuance of Treasury and other government bonds declined 48.2% q-o-q due to the government’s reduced borrowing after meeting its financing needs in the prior quarters.
Meanwhile, outstanding corporate debt increased by 2.6% quarter on quarter to $23 billion (10.5% of the total) due to fewer maturities, the ADB said.
This came despite lower corporate bond issuances in the period.
“Total corporate bond issuance dropped 63.3% q-o-q in the fourth quarter largely due to the exceptionally high issuance volume in the previous quarter,” it added.
The ADB said the investor base of the Philippine bond market was among the least diverse in emerging East Asia at end-2024, with its debt stock mostly held by banks and investment houses and contractual savings institutions and tax-exempt institutions.
“Foreign-currency-denominated sustainability bond instruments remained prevalent in the Philippines’ sustainable bond market in the fourth quarter of 2024,” it added. “By the end of December, sustainability bonds accounted for 83.2% of the market’s total sustainable debt stock, approximately 71% of which were denominated in a foreign currency.”
“At the end of Q4 2024, total outstanding sustainable bonds grew 4% q-o-q to $11.3 billion, with the public and private sectors each contributing a roughly equal share of the market.”
The report showed that the emerging East Asian LCY bond market grew by 3.1% quarter on quarter and 9.6% year on year to $26.31 trillion at end-December.
Vietnam posted the fastest quarterly and annual growth rate at 5% and 18.9%, respectively, although its bond market was the smallest in the region.
In terms of size, the People’s Republic of China had the largest LCY bond market at $21.25 trillion.
“This rapid expansion in Q4 2024 was primarily supported by continued issuance of government bonds in the People’s Republic of China, which were aimed at supporting the slowing economy. Increased public and private sector issuance in Hong Kong, China; the Republic of Korea; and Singapore also contributed to growth in the region’s overall LCY bond stock during the quarter,” the ADB said.
The multilateral lender said risks to financial conditions in the emerging East Asia region are tilted to the downside due to uncertainty stemming from the Trump administration’s shifting trade policies.
“Uncertainty in US economic policies could affect the financial conditions outlook via negative investor sentiment as well as higher-for-longer interest rates in the US. As flagged by officials of the Federal Reserve and the ECB (European Central Bank), changes in trade policies and associated rising tariffs could lead to higher costs, possibly disrupting disinflation patterns,” the ADB said.
“Additionally, larger-than-expected shifts in US immigration (more restrictive) and fiscal (more expansionary) policies could also potentially hinder the disinflationary process. Persistent inflation could slow easing cycles in advanced economies. The US’ prolonged higher interest rates presented challenges to regional financial stability during the review period via capital outflows. Delayed easing action in the US may affect regional central banks’ easing cycles, slowing the decline in borrowing costs and weighing on growth.”
Slowdown concerns in China could also weaken regional market sentiment, the ADB added. — A.M.C. Sy
