Indonesia'Weak peso may erode appeal of Philippines bonds to foreign funds'
Manulife Investments Philippines warns that a weakening peso could diminish the appeal of Philippine bonds to foreign investors, potentially increasing the demand for higher risk premiums.
Peso Depreciation Forces Risk Premium Reassessment
Foreign appetite for local currency sovereign debt relies heavily on currency stability to protect total returns. When the peso depreciates, foreign funds see their yields eroded in foreign currency terms. To offset this exchange rate exposure, investors will naturally demand higher risk premiums, raising overall borrowing costs across the domestic market.
Maintaining foreign involvement requires a clear response from local policymakers and debt managers. If local bond yields fail to adjust upward quickly enough to cover currency risks, international participation in debt auctions will decline. That shift places the burden of absorbing new debt issuances entirely on domestic financial institutions.
For investment committees, holding Philippine fixed income now requires factoring in explicit currency hedging costs or holding out for higher baseline yields before deploying capital.