Philippine Bonds Decline on Interest-Rate Outlook; Peso Weakens

Philippine bonds declined on speculation the central bank, which cut its benchmark interest rate four times in 2012 to support growth, will refrain from further reductions this year.

Bangko Sentral ng Pilipinas last lowered its overnight rate to 3.5 percent from 3.75 percent on Oct. 25. That is less than the annual inflation rate of 3.6 percent in September. The peso has rallied 1.1 percent against the dollar this month and fluctuated between gains and losses after Moody’s Investors Service upgraded the nation’s debt rating today to the highest level since the start of 2004.

“I would say the easing cycle is over for this year,” said Jackit Wong, a regional economist in Hong Kong at Natixis Asia Ltd. “The latest cut was a pre-emptive move to address external economic concerns and to curb gains in the peso.”

The yield on the 8 percent bonds due July 2031 rose one basis point, or 0.01 percentage point, to 5.66 percent from Oct. 25, according to Tradition Financial Services.

The government had a budget deficit of 34.9 billion pesos ($845 million) last month, compared with a surplus 2.5 billion pesos in August, official data showed Oct. 24. The trade deficit widened to $1.26 billion in August from $236 million in July, the government reported Oct. 25.

Moody’s Upgrade

Moody’s raised the country foreign and local currency long- term bond ratings by one step to Ba1 from Ba2, or one level below investment grade. The outlook is stable. That put the ranking on par with the assessment at Standard & Poor’s.

“We have been expecting an upgrade this year or early next year as economic growth has been strong,” said Jetro Siekkinen, an emerging-market bond manager in Helsinki at Aktia Asset Management, which oversees about $10 billion. “There are short- term risks because of weak export demand, therefore an investment grade may not come sooner than late next year.”

The Philippine economy has shown “economic strength and fiscal resilience” in the face of a global slowdown, Moody’s said in a statement today. It’s poised to record faster growth, lower inflation, exchange rate appreciation and an increase in foreign exchange reserves, it said.

The peso weakened 0.1 percent to 41.263 per dollar, data from Tullett Prebon Plc show. The currency traded between gains and losses after the Moody’s announcement. It reached 41.120 on Oct. 18, the strongest level since March 2008.

One-month implied volatility, a measure of exchange-rate swings used to price options, was steady at 4.85 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

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