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Bond investors pile back into Philippines debt

2019 is shaping up well for the Philippines with February’s inflation dropping to 3.8%. Bond investors have bitten, which bodes well for corporate debt issuance in the second half of the year.

As one of southeast Asia’s fastest growing economies, the nation’s 2019 first quarter has matched more buoyant expectations.

Inflation continued its downward trajectory, falling to 3.8% in that month, a marked drop from its 2018 high of 6.7%, according to First Metro Investment Corporation (First Metro) and the University of Asia and the Pacific’s Capital Market Research analysts’ February report – The Market Call

As such, bond investors have also resurfaced – buying up government debt and heating up the secondary markets. Yields on 10-year and 20-year Treasury Bills plunged by 69.5 bps and 82.3 bps in January, respectively.

First Metro analysts believe that if lower inflation is sustained, corporates will come back to the fold to issue debt in the latter half of the year.

The more buoyant mood coincides with the appointment of Benjamin Diokno, the nation’s former budget secretary, as the new central bank governor, replacing the late Nestor Espenilla, whose guidance was credited as having helped reduce inflation and encouraged investors back into the market.

February 2019 saw the peso become Asia’s strongest performing currency, trading at P51.70, buoyed by investment, remittances and the domestic economy.

But in early March, the currency took a 0.9% dip to close at P52.19 to the dollar, its most significant daily decline since 2018. 


This year’s general election scheduled for May 13 (incorporating 12 senate seats plus the House of Representatives, regional, provincial, city and municipal polls) is helping to boost the economy and loosen the nation’s purse strings particularly for infrastructure spending. 

First Metro’s newest report predicts ongoing investment-led spending driven by increased infrastructure and major public-private partnerships, plus a resurgence in consumer spending could lead to faster GDP growth than 2018 by year’s end.

Philippine quarterly GDP year-on-year

Source: Philippines Statistics Authority (PSA)

According to The Market Call’s analysts, 2019 oil prices – one of the key drivers to inflation – are forecast to remain around 30% below their 2018 peak. A stabilising and strengthening peso, rising overseas remittances, lower long-term interest rates, falling bond yields together with January’s PSEi up 7.3% from December levels – the third fastest uptick in the region – all add to positive sentiment for the Philippines.


From a macroeconomic outlook the report reveals the nation’s imports continue to rise, reaching 13.3% year-on-year to $108.9 billion in 2018, a move which outpaced annual exports.

First Metro believes export growth will move into positive territory this year thanks to increasing exports to the US market.

However, the nation’s trade deficit is likely to create additional pressure on the peso although The Market Call analysts believe it won’t weaken to October 2018 rates when the currency traded at P54.41 (a 13-year low), and will most likely continue to trade within the current range of P52-52.60 for the rest of the first quarter.

For more in-depth analysis by First Metro, please click here

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