Bloomberg News

Philippine Bonds Decline on Inflation Concern; Peso Rebounds

May 15, 2012

Philippine 20-year bonds fell, halting three days of gains, after the central bank said inflation risks remain. The peso rebounded from a one-month low.

Possible increases in commodity prices still pose a threat to consumer prices, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in an e-mail this week. Government spending rose 13 percent in the first quarter from a year earlier to 394.9 billion pesos ($9.3 billion), according to an April 25 report. Inflation reached 3 percent in April, accelerating from a 30- month low in March, official data show.

“Higher government spending may add to inflation pressures,” said Deanno Basas, investment director for fixed income at ATR KimEng Asset Management in Manila.

The yield on the government’s 8 percent bond due July 2031 rose three basis points, or 0.03 percentage point, to 5.94 percent as of 4:41 p.m. in Manila, according to Tradition Financial Services.

The benchmark share index fell 2.1 percent, its sharpest drop in seven months, as the possibility of Greece leaving the euro and a territorial dispute with China damped demand for the Southeast Asian nation’s stocks.

“The risk-off sentiment is affecting all assets,” Basas said. “Tensions with China partly affecting stocks is something to keep an eye on.”

The peso closed 0.1 percent stronger at 42.67 pesos per dollar, prices from Tullett Prebon Plc showed. It touched 42.820 earlier, the weakest level since April 11. One-month implied volatility, which measures exchange-rate swings used to price options, rose 50 basis points to 6.50 percent.

Tensions between China and the Philippines have risen since a standoff began last month between ships from both countries over an island in the South China Sea. China’s Xinhua News Agency reported last week that Ctrip.com, the country’s largest online travel company, and Beijing Caissa International Travel Service Co. halted tours to the Southeast Asian nation.

To contact the reporters on this story: Clarissa Batino at cbatino@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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