Philippine Bonds Drop for a Third Day on Interest-Rate Outlook

Philippine bonds dropped, pushing yields to a four-month high, on speculation the central bank will halt interest-rate cuts on signs the economy is recovering. The peso strengthened.

The World Bank said this week the Philippine economy may grow 4.2 percent in 2012 and 5 percent in 2013, compared with 3.7 percent last year. Exports unexpectedly rose in January after eight months of declines, official data showed March 13. The central bank has reduced the overnight borrowing rate by 50 basis points this year to 4 percent, with the next review due April 19.

“The local economy is recovering and that means the central bank won’t continue with rate cuts,” said Ju Wang, an emerging-markets fixed-income strategist at Barclays Capital in Singapore. “Near term, you might see yields going higher.”

The yield on the 6.375 percent bond due January 2022 increased 10 basis points to 5.75 percent as of 10:05 a.m. in Manila, prices from Tradition Financial Services show. That’s the highest level since Nov. 17. Yields have increased 50 basis points this week.

Philippine 10-year bonds yielded 342 basis points, or 3.42 percentage points, more that similar-maturity Treasuries, according to data compiled by Bloomberg. That’s down from 492 basis points on Sept. 23, the widest since July 2010.

“Given the smaller spread against U.S. Treasuries, local bonds are less attractive from a foreigners’ perspective for now,” Wang said.

Shipments abroad climbed 3 percent from a year earlier to $4.1 billion after a revised 18.9 percent fall in December. The median estimate in a Bloomberg News survey was for an 18.5 percent decline.

The peso advanced 0.1 percent to 43.028 per dollar, according to Tullett Prebon Plc. One-month implied volatility, which measures exchange-rate swings used to price options, was steady at 6.1 percent.

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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