Bloomberg News

Philippine Bonds Gain, Peso Weakens as Further Easing Signaled

September 26, 2012

Philippine bonds rose and the peso declined after central bank Governor Amando Tetangco signaled that further interest-rate cuts are possible this year.

Local-currency notes also advanced after Deputy Treasurer Eduardo Mendiola said yesterday the amount of debt to be sold at regular auctions in the three months to December will probably drop from this quarter. The yield on 20-year notes fell to 5.722 percent at an auction yesterday, the lowest since at least 2002, data compiled by Bloomberg showed.

“The central bank saying it still has room tends to support bonds and is positive for markets in general,” said Raul Tan, head of the balance-sheet segment of Rizal Commercial Banking Corp. (RCB)’s Treasury Group in Manila.

The peso fell 0.7 percent to 42.017 per dollar at the close in Manila, its steepest drop since Aug. 15, prices from Tullett Prebon Plc show. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 5.25 percent.

The government had a budget surplus of 2.52 billion pesos ($60 million) in August, narrowing the eight-month gap to 71.21 billion pesos, it reported today. Revenue last month rose 4.2 percent, while spending gained 10.4 percent.

Inflation Target

The yield on the Philippine government’s 6.25 percent bonds due September 2014 fell 25 basis points, or 0.25 percentage point, to 2.59 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp.

“We have the policy space,” Tetangco wrote in a Sept. 24 mobile-phone message, in reply to whether the central bank still sees scope for further easing this year. “We will recalibrate as appropriate, given we have the room.”

Bangko Sentral ng Pilipinas kept its overnight borrowing rate at a record-low 3.75 percent on Sept. 13 after three reductions earlier in the year. Tetangco said Sept. 19 that inflation, which accelerated to a seven-month high of 3.8 percent in August, was well within the central bank’s target.

“As far as the central bank’s inflation target is concerned, there’s still room and the pressure on inflation isn’t really there yet,” Tan said.

To contact the reporter 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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