Gross of domestic holdership, and including estimates of the “non-monitored” debt stock.
Preliminary data from the central bank show that in 2004, domestic investors purchased over $3 billion of externally floated Philippine debt, or close to a fifth of the entire stock of RoPs, from external investors in the secondary market alone.
These banks could, of course, purchase other dollar denominated assets, but the existence of a strong “home bias” is common knowledge in the Philippines, and is in fact, widely prevalent globally in the asset allocation process (see Global Financial Stability Reports April 2004, and September 2005). While there are other equally high yielding instruments as RoPs, domestic banks frequently cite two factors as drivers of this home bias: First, their familiarity with Philippines risk, and second, an institutional aversion to other more complicated financial instruments which might offer comparable yields. Additionally, as Philippine bonds are zero-risk weighted per banking regulations, this also creates a natural advantage for RoPs.
The FCDU data from the BSP covers both resident and non-resident lending and deposits.
We treated the whole of the year 2000 as a single event, to prevent excessive clustering. Excluding this year, the average duration drops to 47 days, and the standard deviation about this average is 42 days.
The local market is much more liquid in the shorter maturities of the yield curve. The comparison with a five-year bond is, essentially, a conservative one. In reality, the coupon payment on a typical basket of Philippine government bonds is likely to be lower than that of the five-year bond, thereby lowering its total returns.
Comparisons of risk-adjusted returns, by standardizing the nominal returns by the daily volatility of each asset, were also conducted. On a risk-adjusted basis, the peso bond outperformed RoPs in three events.