Philippine sovereign bonds gained on Tuesday, outperforming the steady broad market, as high yields against US Treasuries and the government's plan to issue more local currency debt spurred investor demand. The Asia ex-Japan iTraxx investment-grade index was little changed at 125 basis points (bps), traders said, mirroring the steady equities market.
The investment-grade Markit iTraxx Europe index was flat at 114.75 bps in morning trade. But Philippine debt rose, supported by onshore banks awash with US dollar funds from remittances by Filipinos working abroad. Latest central bank data showed remittances in the January-June period rose 7 percent to $9.1 billion from a year ago.
"Investors see value in Philippine sovereign bonds as US Treasury yields continue to fall. Philippine dollar bonds are liquid, tradeable and the local market has a lot of dollar liquidity," a Manila-based trader said. Philippine dollar bonds yielded 130 to 150 bps above US Treasuries, traders said. The country's debt due in 2002 traded at 119/119.25 cents on the dollar, its highest level since it was sold in July 2009, versus 118.5 in the previous session, Manila traders said.
Manila's plan to issue more peso bonds both in the Philippines and in the global market also lifted demand for the country's dollar-denominated bonds, traders said. The Philippines is selling $2.2 billion of local currency retail bonds to local investors. It also plans to issue $1 billion of global peso bonds later this year. "There is a lot of offshore interest in Asian high-yield sovereign bonds because of the large capital inflows into emerging market bond funds," said Scott Bennett, who manages $1.5 billion as head of Asian credit at Aberdeen Asset Management in Singapore.
On the corporate side, the most-actively traded bonds were South Korean and Indian bank names such as Woori Bank and Bank of India, traders said. Woori Bank's debt due in 2016 was traded 1 to 2 bps wider at 274 above US Treasuries. In the primary market, Philippine toll operator Coastal Road Corp plans to price its $165-million bond due in 12 years on Wednesday at 12 percent, a source close to the deal said.
Bankers said with the summer holiday in developed markets, activity in the primary market may be muted for the rest of the month, and could resume next month. The iTraxx SovX Asia Pacific index, which tracks the 5-year sovereign CDS of 10 countries in the region, was also steady at 120 bps, traders said.