With the looming inclusion of Philippine bonds in JPMorgan Chase & Co.’s (JPMorganChase) influential emerging market (EM) government bond index, tens of billions of dollars in passive inflows could be expected, but this also puts local banks and bond dealers in tighter competition with foreign lenders.

“Local banks and bond dealers would face increased competition from foreign investors, especially in the longer-tenor segments,” said John Paolo Rivera, senior research fellow at state policy think tank Philippine Institute for Development Studies (PIDS).

This comes as JPMorganChase has placed the country’s peso-denominated government bonds on a positive watchlist for potential inclusion in its Government Bond Index-Emerging Market (GBI-EM) series.

“It would be a strong vote of confidence in the Philippines’ macroeconomic fundamentals and capital market reforms,” Rivera said.

“It could attract billions in passive inflows from global bond investors, helping to deepen the local bond market, enhance liquidity, and lower long-term borrowing costs for the government,” he added.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort also said the potential inclusion could boost demand for local long-dated treasury bonds (T-bonds), benefiting investors through trading gains, and helping the government and other borrowers with lower financing costs.

Analysts believe the move could attract an estimated $10 billion to $12 billion in fresh investments. Besides reducing the government’s borrowing costs, it could also free up resources for public spending.

Upon inclusion, Rivera expects yields to fall in the short term, but he anticipates that the move could eventually lead to fairer pricing, a more efficient market, and stronger regulatory oversight.

“To sustain this momentum, it’s important for the government to ensure predictable fiscal management, exchange rate stability, and continued improvements in market infrastructure,” Rivera said. This includes settlement systems and tax clarity for foreign investors.

According to a JPMorgan report dated Sept. 12, the Philippines would have an estimated weight of about one percent in the GBI-EM Global Diversified Index if it becomes included by early next year.

“[A] one-percent weight on the global emerging market bond index would be huge and could also be replicated by more local and foreign fund managers and other investors,” Ricafort said.

The index is the industry standard for tracking local-currency EM debt and is followed by global fund managers.

“There would be greater flexibility for the national government to finance its budget deficits, especially the borrowing mix in favor of more domestic borrowings,” he added. The government is targeting to borrow 80 percent of its debt domestically, and 20 percent externally.

However, with stronger global demand from a higher index weight, Ricafort said the government could prudently consider additional foreign borrowings to diversify funding sources and maintain a steady supply in the world market.