Philippine Bonds Gain on Rate-Cut Outlook, Debt Swap; Peso Rises

Philippine bonds gained this week on speculation the central bank will reduce interest rates further, and after the government said it is considering swapping debt for shorter-dated securities. The peso rose.

Governor Amando Tetangco said Aug. 1 the nation’s inflation outlook allows more room for policy action, if needed. Bangko Sentral ng Pilipinas cut the benchmark rate last week to a record low of 3.75 percent from 4 percent. The government plans to swap debt this year and is considering offering seven-, 10-, 15-, 20- and 25-year securities in exchange, Deputy Treasurer Eduardo Mendiola said this week.

“The anticipation of another cut at the next policy meeting and the bond exchange should put more pressure on bond yields to go down, especially the shorter-dated ones,” said Jonathan Ravelas, Manila-based chief market strategist at BDO Unibank Inc. (BDO)

The yield on the Philippine government’s 4.75 percent bonds due July 2019 fell three basis points, or 0.03 percentage point, to 4.7 percent today, matching the decline for the week, according to Tradition Financial Services.

The peso gained 0.1 percent this week to 41.855 per dollar as of the close in Manila, prices from Tullett Prebon Plc show. The currency was unchanged today. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 6 percent today. The gauge dropped 25 basis points this week.

The Philippines will probably sell 60 billion pesos ($1.4 billion) to 70 billion pesos of 25-year debt to individuals in October, Mendiola said this week.

To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net

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

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