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Gov’t borrowing to fund pandemic expenses driving bond market

govt borrowing to fund pandemic expenses driving bond market 816x478 - Gov’t borrowing to fund pandemic expenses driving bond market

BOND MARKET growth accelerated in the third quarter to meet government demand for funds to finance its coronavirus disease 2019 (COVID-19) containment efforts, the Asian Development Bank (ADB) said Wednesday.

According to the ADB Bond Monitor, the peso bond market grew 8.8% from a quarter earlier to P8.136 trillion in the third quarter, outpacing the 5.2% growth rate in the second quarter. Year on year the growth rate was 21.5%.

The bond market consisted of 79.9% government bonds and 21.1% corporate bonds.

Outstanding government securities totaled P6.503 trillion at the end of September, up 10.1% quarter on quarter and 23.8% year on year. The ADB said Treasury bills and bonds amounted to P1.106 trillion in the third quarter, up 65.4% year on year, after a decline of 6.9% in the second quarter.

Treasury bonds issued totaled P651.3 billion, more than thrice the amount issued in the second quarter.

“The timing has been conducive for the government to secure a good portion of funds for its spending needs amid the COVID-19 pandemic as interest rates remain low while high liquidity in the market drew in strong demand from investors,” the ADB said.

Treasury bills totaled P488.6 billion, declining 17.2% year on year after posting nearly 50% growth in the second quarter.

“The drop in debt sales was traced to lower offer volumes during the quarter. The BTr [Bureau of the Treasury] also rejected bids for 365-day Treasury bills in one of the auctions as investors demanded higher rates,” the ADB said.

The BTr also canceled samurai and panda bond issues this year after the Bangko Sentral ng Pilipinas (BSP) approved an advance credit to the National Government to manage liquidity in the market.  Instead, the BTr will issue a second tranche of Premyo bonds to retail investors in November.

“The BTr deferred its plan to issue samurai and panda bonds in 2020 as funds raised domestically were enough to cover the government’s financing requirements. The government’s P540 billion advance credit from the BSP allowed the BTr to shelve this plan,” the ADB said.

The central bank also issued in September a 28-day paper worth P50 billion. Auction volumes started small and were gradually increased based on market response.

Corporate bonds outstanding grew 3.8% quarter on quarter to P1.633 trillion. Year on year the growth rate was 12.9%. Bond issues totaled P126.3 billion, up sharply from P27.6 billion a quarter earlier.

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

The banking sector issued the most bonds, accounting for 41.7%, against the 37.9% share posted a year earlier.

In emerging East Asia, the Philippine bond market was the third-fastest growing on a quarter-on-quarter basis, behind Vietnam’s 11.6% and Indonesia’s 9.9%. The sub-region consists of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam.

The sub-region’s bond market was valued at $18.7 trillion at the end of September.

“Governments continued to issue sovereign debt to finance economic relief measures amid the economic fallout brought about by COVID-19. Meanwhile, risk-off sentiment amid the protracted economic slowdown led to weaker growth in the region’s corporate bond markets,” the ADB said. — Kathryn Kristina T. Jose

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