Bloomberg News

Philippine Bonds Snap Eight-Day Rally as Gains Judged Excessive

November 14, 2012

Philippine government bonds fell, snapping an eight-day advance, on speculation the decline in yields may have been excessive. The peso was little changed.

The yield on the 19-year notes dropped 12 basis points in the eight days through yesterday and reached 5.57 percent, the lowest level since Sept. 7. Bangko Sentral ng Pilipinas cut its benchmark interest rate to 3.5 percent on Oct. 25, the fourth reduction this year, to spur growth and damp peso appreciation.

“People might be locking in some gains,” said Jan Briace Santos, a fixed-income trader who helps manage the equivalent of $17 billion at BPI Asset Management Inc. in Manila. “The sudden decline in yields in the past few days warrants a correction.”

The yield on the government’s 8 percent bonds due July 2031 increased four basis points, or 0.04 percentage point, to 5.605 percent as of 4:17 p.m. in Manila, according to prices from Tradition Financial Services.

The peso was little changed at 41.118 per dollar, compared with 41.113 yesterday, according to Tullett Prebon Plc. It has strengthened 6.5 percent this year. One-month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 4.70 percent.

The central bank has been “more closely monitoring market conduct to ensure that movements in the exchange rate are not excessively volatile,” Governor Amando Tetangco wrote in an e- mailed reply to questions on Nov. 12. The monetary authority has “policy space given the current level of interest rates” and it’s looking at possible refinements in the tools to manage domestic cash flows, Tetangco wrote.

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

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


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