Safer bond market predicted to be the “next victim” of President Duterte’s rhetoric after stocks and the foreign exchange markets.
Christopher Langner, a Bloomerg columnist, cited data from JPMorgan Asian Credit Index and said that Philippine bonds are at its worst. Prices went down by 0.55 percent and credit default swaps (CDS) got higher.
Prices go down when investors perceive higher risk in a bond market and vice-versa. Yields or the measurement for the interest the government has to pay to bondholders have an inverse relationship to prices. On the other hand, the CDS spread rises when the bond seller is deemed as risky. It works just like an insurance for the bondholders.
Upon the assessment of Langer, it showed that there was a 2.02% drop in the Philippines Stock Exchange index from last month alone. As of October 10, it went down to 43.58 or 0.58%. Similarly, peso also suffered a 4.12% loss, recording its lowest exchange rate against US dollar last month in the last seven years.
This plunge in the financial market performance of the country was when Duterte said unfavorable things to US and EU and saying that he was cutting ties with them and allying with China and Russia instead. However, this also coincided with the US Federal Reserve decision to steady the policy rates. The higher rates in the US was what attracted foreign investors to them but the analyst believed that the statements thrown by President Duterte to his foreign critics also became a determining factor.
Langer said that the Philippines was able to escape larger bond outflows for now but this does not assure long term security. Despite this, Finance Secretary Carlos Dominguez III said that he was able to meet representatives of key investors in the US to assure them of the strong economic fundamentals of the Philippines.
Lastly, Langer commented that it would be bad for the country if we are “rated junk” again after having left this label five years ago.