JPMorgan index may lift PHL bond demand

By Aaron Michael C. Sy, Reporter

THE Philippines is set to be added to JPMorgan Chase & Co.’s local currency emerging market debt index from Jan. 29 next year, a move that is expected to lift foreign participation in local bond issuances and improve pricing conditions for government borrowing.

The inclusion will cover Philippine peso-denominated government bonds, which will enter the widely tracked Government Bond Index-Emerging Markets (GBI-EM).

Finance Secretary Frederick D. Go said the inclusion signals investor confidence in the country’s fundamentals and fiscal management.

“It reflects a strong vote of confidence in our solid fundamentals and fiscal discipline,” he said in a Viber message. “This milestone will broaden our investor base, improve market liquidity and help lower borrowing costs.”

JPMorgan’s GBI-EM tracks sovereign and quasi-sovereign bonds issued by emerging markets. Philippine global peso notes were removed from the index in January 2024 due to illiquidity concerns.

Eligible securities include Philippine peso-denominated government bonds issued from 2023 with maturities of up to 20 years.

The Philippines was placed on “Index Watch Positive” seven months before the announcement.

A joint statement from the Department of Finance, Bureau of the Treasury and Bangko Sentral ng Pilipinas (BSP) said the decision reflects reforms aimed at deepening bond market liquidity, expanding the interest rate swap market, strengthening the repo market and simplifying tax treaty application rules.

BSP Governor Eli M. Remolona, Jr. said the development strengthens capital market depth and monetary policy transmission.

“This is a major step in deepening the Philippine capital markets, with significant benefits to the government, to domestic and global investors and to local banks and businesses,” he said. “As bonds gain more liquidity, this will help the BSP transmit monetary policy, benefiting borrowers and investors across the economy.”

The agencies said they would continue coordinating with regulators and market participants to align domestic trading and pricing practices with global standards.

Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said the inclusion boosts the country’s credibility in global debt markets and supports sustained foreign inflows.

“The Philippines’ inclusion in the JPMorgan Government Bond Index is a major credibility upgrade,” he said in a Viber message. “It effectively puts Philippine bonds on the ‘must-own’ list for global investors, driving steady, long-term foreign inflows rather than hot money.”

“That broader investor base should gradually lower borrowing costs by compressing risk premiums and improving bond market liquidity,” he added.

He said disciplined fiscal and inflation management would be key to sustaining the benefits of the index inclusion.

Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said the move might improve demand and pricing for offshore issuances and support government funding plans.

“We can also expect increased foreign participation in onshore bonds, as index inclusion typically attracts passive and benchmark-driven investors,” he said via Viber.

The government raised $2.75 billion in January through a triple-tranche dollar bond issuance, consisting of $1.5 billion in 10-year bonds at 5%, $750 million in 25-year bonds at 5.75% and 5.5-year notes at 4.25%.

About $2.5 billion remains in its foreign borrowing program, with a possible issuance as early as the second quarter, according to the Treasury bureau.