Bloomberg News

Philippine Bonds Advance on Inflation Outlook; Peso Declines

July 12, 2012

Philippine bonds gained, with the 20-year yield approaching a four-month low, after the central bank said inflation this year will average closer to the low end of its 3 percent to 5 percent target range. The peso fell.

Inflation remains manageable this year and next, Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters in Manila yesterday. Consumer-price gains slowed to 2.8 percent in June from a year earlier, averaging 3 percent in the first six months, government data showed on July 5. The Bank of Korea unexpectedly cut borrowing costs for the first time in more than three years today.

“Bonds are well supported because any chance of a rate hike is nil,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. (RCB) in Manila. Authorities “have room to lower rates if needed,” he said. “At this point, I don’t think there’s a need because economic growth is healthy.”

The yield on the government’s 5.875 percent bonds due March 2032 dropped two basis points, or 0.02 percentage point, to 5.82 percent as of 4:16 p.m. in Manila, according to data from Tradition Financial Services. The rate reached 5.78 percent on July 6, the lowest level since March 16.

Policy makers held the benchmark interest rate for a second meeting at a record low of 4 percent on June 14. They meet next on July 26. The Bank of Korea cut its key rate by 25 basis points to 3 percent.

Peso Falls

Second-quarter growth was probably faster than the 6.4 percent expansion recorded in the previous three months on better farm output and higher government spending, presidential spokesman Ricky Carandang said on July 2.

The Philippine peso had its biggest decline in almost three weeks, dropping 0.5 percent to 42.065 per dollar in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 6.2 percent.

The peso has risen 4.2 percent this year, the biggest gainer among Asia’s 11 most-traded currencies.

The central bank said on July 7 that it was prohibiting foreign funds from investing in its special deposit accounts. “What we don’t like to see is movement caused by speculation,” Tetangco said yesterday.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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