Pandemic, uncertainty weigh on bond market

Credit to Author: Mayvelin U. Caraballo, TMT| Date: Wed, 25 Mar 2020 17:53:36 +0000

The Philippines’ local currency (LCY) bond market fell quarter-on-quarter amid a drop in government bonds, which the Asian Development Bank (ADB) said could be attributed to the coronavirus disease 2019 (Covid-19) pandemic and the economic uncertainty it caused.

Outstanding LCY bonds declined by 0.8 percent to P6.64 trillion ($131 billion) at the end of December 2019 from P6.69 trillion ($129 billion) a quarter earlier, the Manila-based lender said in its latest ”Asia Bond Monitor” report.

The LCY market grew by 9 percent to P6.09 trillion from $116 billion a year earlier.

Outstanding government bonds totaled P5.14 trillion, down 2.1 percent quarter-on-quarter, “as both Treasury bills and Treasury bonds registered quarter-on-quarter declines in Q4 (fourth quarter) 2019,” the ADB said.

Treasury bills eased by 12.1 percent to P486 billion ($10 billion), while Treasury bonds slipped by 1.3 percent to P4.61 trillion ($91 billion) in the period.

Outstanding corporate bonds grew by 4 percent to P1.50 trillion ($30 billion) in the three months to December and 14.5 percent year-on-year “due to [a] higher issuance during the quarter.”

In a statement, the ADB said the pandemic and deepening global economic uncertainty weighed heavily on local currency bond markets of emerging East Asian economies, including the Philippines.

“Financial markets in the region are already feeling the brunt of the effects of the Covid-19 pandemic, with foreign investment and sector activities on the downside, coupled with ongoing trade issues,” ADB Chief Economist Yasuyuki Sawada said.

To cushion Covid-19’s adverse impact on economic activities and financial markets, a number of governments have implemented fiscal stimulus and/or monetary measures to support affected individuals and local businesses, and to stabilize financial markets, according to the multilateral lender.

Several central banks in emerging East Asia, including the Bangko Sentral ng Pilipinas, have cut their policy rates to mitigate the coronavirus’ economic impact, it said.

“Efforts to cushion the negative impacts of the pandemic through stimulus packages and monetary measures to support affected households, businesses and financial markets should continue,”  Sawada said.