Philippine Peso Drops on Europe, Greece Tension; Bonds Gain

The Philippine peso dropped by the most in almost a year as concern Greece will default on its debt deters risk-taking, sapping demand for emerging-market assets. Government bonds advanced.

The peso fell for a second day after Greece called a referendum on a bailout agreement reached last week, prompting European Union leaders to withhold financial aid. The currencies of Southeast Asia’s five biggest economies all retreated today as investors favored the relative safety of the dollar.

“The market will have to focus on the Greece referendum,” said Shigeo Zenki, head of the treasury department at Bank of Tokyo-Mitsubishi UFJ Ltd. in Manila. “Risk appetite will suffer in the short-term, although Greece has little choice but to accept the bailout plan.”

The peso slumped 0.8 percent to 43.12 per dollar, after a 0.4 percent loss yesterday, according to Tullett Prebon Plc. That was the biggest daily decline since Nov. 11, 2010. The currency reached a seven-week high of 42.50 on Oct. 28 and is unlikely to weaken beyond 43.20 this week, Zenki said.

Greece’s referendum will determine whether it remains in the 17-nation euro area, German Chancellor Angela Merkel told reporters after crisis talks before a Group of 20 nations’ summit starting today in Cannes, France. French President Nicolas Sarkozy said Greece won’t get a “single cent” of assistance if voters rejects the bailout plan.

Bangko Sentral ng Pilipinas on Oct. 28 asked banks to set aside more capital to cover non-deliverable currency forwards from January to reduce systemic risk. The move to tone down speculative trades will temper peso gains, Governor Amando Tetangco said on Nov. 1.

Government bonds gained after the central bank said it can afford to keep interest rates on hold because of the benign outlook for inflation. Economists predicted prices may have jumped 5 percent last month from a year earlier after a 4.8 percent rise in September, according to a Bloomberg survey before a statistics bureau report tomorrow.

The yield on the government’s 5.875 percent security due January 2018 dropped five basis points, or 0.05 percentage point, to 5.05 percent, according to Tradition Financial Services.

The central bank, which kept its overnight rate unchanged at 4.50 percent on Oct. 20, can keep rates on hold because the inflation outlook remains “manageable,” Tetangco said Oct. 29.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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

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