PHL bond market to be 'mildly bearish' in 2017 – HSBC

The Philippine bond market is expected to be "mildly bearish" in 2017, given the increased support for infrastructure spending, a report by the Hongkong and Shanghai Banking Corp. (HSBC) said on Wednesday.

"We express a mildly bearish stance on the Philippines for 2017. The Philippines' policy direction, following the country's own presidential elections in May 2016, has already shifted towards more infrastructure spending," it said in the report "EM Rates: Rotate and reduce in 2017."

Budget and Management Secretary Benjamin M. Diokno has said the government earmarked P8.2 trillion to fund the Philippine "golden age of infrastructure" over the next six years.

According to the Finance Department, a total of P860.7 billion has been allocated for large-scale infrastructure projects in 2017 alone.

"Amid expectations for a rise in the government's funding needs, Philippines government bond yields moved significantly higher with a steepening bias in the second quarter of 2016. A further rise in bond yields is possible, in our view," HSBC said.

"An increase in government bond supply in 2017 seems unavoidable. The Bureau of Treasury (BTr) is expected to issue P465 billion of Treasury bonds in 2017. This is 30 percent more than the total expected Treasury bond issuance in 2016," it added.

The inter-agency Development Budget Coordinating Committee (DBCC) plans to boost infrastructure spending to 5.2 percent of the country's gross domestic product (GDP) [http://www.gmanetwork.com/news/story/572477/money/economy/duterte-admin-lowers-gdp-target-to-6-7], with the development works running 24 hours a day, seven days a week. http://www.gmanetwork.com/news/story/572507/money/economy/duterte-admin-eyeing-24-7-construction-work-for-infra-projects

"Funding needs from the private sector are also likely to grow, given the robust economic outlook," according to HSBC.

In a separate report on Tuesday, the Asian Development Bank noted the Philippine local currency bond market expanded by 1.6 percent in the third quarter of the year. — Jon Viktor Cabuenas/VDS, GMA News