Philippine Peso Near Two-Week High on Yield Premium; Bonds Fall

The Philippine peso rose toward a two-week high on speculation its yield premium will remain attractive to foreign investors as the central bank halts its interest-rate cutting cycle. Bonds fell.

Policy makers held the rate paid to lenders for overnight deposits at 4 percent, the central bank said in a statement after the market closed. The decision was predicted by all 17 economists in a Bloomberg News survey. Philippine 10-year bonds yield 384 basis points more than similar-maturity U.S. Treasuries.

“The rate differential won’t narrow anymore,” said Radhika Rao, an economist at Forecast Pte in Singapore. “That will keep the peso on a stronger footing.”

The peso closed 0.1 percent higher at 42.618 per dollar in Manila, compared with 42.655 yesterday, according to Tullett Prebon Plc. The currency touched 42.560 yesterday, the highest level since April 3. One-month implied volatility, which measures exchange-rate swings used to price options, was steady at 5.40 percent.

“A prudent pause allows policy makers to better assess how the upside and downside risks to inflation will play out,” central bank Governor Amando Tetangco said today. Inflation is targeted between 3 percent and 5 percent this year.

The yield on the government’s 5 percent bonds due August 2018 increased five basis points, or 0.05 percentage point, to 4.95 percent, according to prices from Tradition Financial Services.

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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