DOF sees economic boost from J.P. Morgan bond index inclusion

The Philippines’ potential inclusion in the J.P. Morgan Government Bond Index – Emerging Markets (GBI-EM) series will increase the exposure of government bonds to foreign investors and boost economic growth, Finance Secretary Ralph Recto said Tuesday.

The country’s placement on the “index watch-positive” signals that its peso-denominated government bonds, known as RPGBs, could be added to the GBI-EM, a key benchmark for international investors, according to the Bureau of Treasury (BTr).

Inclusion could further deepen the market and reduce the government’s reliance on foreign currency borrowings, the BTr said.

“This is a promising development for the Philippines as the potential inclusion of our government bonds into this global index means increased capital inflows and therefore more funds for the government to better serve Filipinos,” Recto said in a statement.

“This is an excellent opportunity for us to promote our capital markets to a wider range of investors,” he said.

More foreign investment into peso-denominated government bonds would help lower borrowing costs, generate more jobs and channel greater resources into classrooms, hospitals and infrastructure that uplift Filipino families, he said.

The GBI-EM series, launched in 2005, is the first comprehensive global index of local government bond debt in emerging markets. It serves as the industry standard for most investors tracking performance in those markets.

The Philippines was placed on the “Index Watch-Positive” list after continuous discussions with J.P. Morgan led by the Department of Finance (DOF) and the BTr. This marks the final review phase for the RPGBs.

For potential inclusion are RPGBs issued from 2023 with tenors up to 20 years. The positive assessment was attributed to the swift and proactive passage of fiscal reforms over the last three years.

These include the Marcos Jr. administration’s efforts to streamline tax treaty procedures, expand the repurchase agreement market, launch the Philippine peso interest rate swap market, increase accessibility via Euroclear and consolidate benchmark tenors.

J.P. Morgan also cited government enhancements that garnered investor approval, such as improved secondary market liquidity and easing of tax hurdles to facilitate scalable index replication and increase foreign portfolio investments.

The Index Watch Assessment is expected to run for six to nine months.