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Philippine Bonds Gain on Inflation Outlook, Peso Appreciates

Philippine bonds gained after the central bank said inflation remains manageable, helping support demand for fixed-income securities. The peso rose for a third day.

The yield dropped to its lowest level in eight weeks after Bangko Sentral ng Pilipinas Governor Amando Tetangco said yesterday inflation may be at 2.5 percent to 3.4 percent this month as price increases for utilities and some vegetables are offset by lower oil costs. Moody’s Investors Service upgraded the nation’s rating outlook in May to positive, citing improving debt levels.

“The outlook is good because inflation is within manageable levels,” said Speedy Delfino, a fixed-income trader at East West Bank Corp. in Manila. “There’s also the chance of an upgrade.”

The yield on the government’s 7.375 percent bonds due March 2021 fell nine basis points, or 0.09 percentage point, to 5.285 percent, according to prices from Tradition Financial Services. That’s the lowest level since May 2.

Consumer-price increases slowed to 2.9 percent in May from 3 percent the previous month, official figures show. The government is due to report June data on July 5.

The peso climbed before the start of a summit on Europe’s debt crisis. The currency advanced 0.1 percent to 42.34 per dollar in Manila, according to Tullett Prebon Plc. The currency touched 42.215 today, the strongest level since June 21. It strengthened 1.3 percent this quarter, the most among Asia’s 10 most-used currencies excluding the yen.

One-month implied volatility for the peso, a measure of exchange-rate swings used to price options, declined 21 basis points, 0.21 percentage point, to 6.09 percent.

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

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

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