Philippine Bonds Rally as Rate Cut Bets Buoy Auction; Peso Gains

Philippine bonds rose before a government debt auction on speculation the central bank will reduce borrowing costs further to protect the Southeast Asian nation’s economy from a global slowdown.

Benchmark 10-year yields fell this month to the lowest since at least 2000 as demand surged at a debt sale, allowing the treasury to borrow for a decade at the cheapest cost since the Asian financial crisis. While inflation quickened in August, price gains have averaged 3.1 percent this year, staying within the central bank’s target of 3 percent to 5 percent. Sixteen of 20 economists in a Bloomberg survey expect Bangko Sentral ng Pilipinas to keep its overnight rate at a record-low 3.75 percent on Sept. 13. Four predict a cut.

“Inflation is still benign,” said Nina Virata, a fixed- income trader at Bank of Commerce in Manila. “Another rate cut before the end of the year is still possible, though unlikely this week.”

The yield on the 4.875 percent bonds due August 2022 fell for a second day, dropping eight basis points, or 0.08 percentage point, to 4.725 percent in Manila, according to Tradition Financial Services. That’s the lowest level since at least December 2000, data from Philippine Dealing & Exchange Corp. show.

The government sold 9 billion pesos ($217 million) of 2022 notes today at an average yield of 4.694 percent versus 4.83 percent at a July 31 offering. Demand exceeded the amount on offer by 4.91 times, the strongest gauge of appetite since February 2010.

The current monetary policy stance is appropriate, Diwa Guinigundo, deputy governor of the central bank, said Sept. 8.

The peso gained for a fourth day. The currency rose 0.1 percent to 41.570 per dollar, data from Tullett Prebon Plc show. It reached 41.548 yesterday, a level not seen since April 2008. One-month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 5.70 percent.

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

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