Philippine Bonds Rise on Slower Inflation, Auction; Peso Gains

Philippine six-year bonds gained as inflation slowed more than economists predicted and demand rose at a treasury debt auction. The peso strengthened.

The yield on sovereign notes due August 2018 slid to the lowest level in more than a year as the government reported consumer prices rose 3.1 percent in October from a year earlier, compared with a 3.6 percent increase in September and the 3.5 percent median forecast in a Bloomberg News survey. The central bank cut its overnight rate by 25 basis points to a record-low 3.5 percent on Oct. 25, the fourth reduction this year.

“This trend can continue in the short term, which means policy makers can afford to pause for the rest of this year,” said Marc Bautista, head of research at Metropolitan Bank & Trust (MBT) Co. in Manila. “Government securities may have priced this in,” limiting the upside, he said.

The yield on the 5 percent bond due August 2018 dropped by 10 basis points, or 0.1 percentage point, to 4.375 percent in Manila, according to Tradition Financial Services. That’s the lowest level since the notes were sold in August last year.

Slower gain in food costs and lower oil prices should keep inflation in check, DBS Bank Ltd. said in a Nov. 5 report. The central bank can maintain an accommodative policy for the most part of 2013, the Singapore-based lender said. Oil prices have dropped 15 percent from a four-month high of $100.42 on Sept. 14.

The treasury sold 9 billion pesos ($218 million) of five- year notes today at an average yield of 4.104 percent, versus 4.466 percentat the previous auction of similar-maturity notes on July 3. Demand was 5.3 times the amount of debt on offer, compared with 3.1 times in July.

The peso climbed 0.1 percent to 41.188 per dollar, data from Tullett Prebon Plc show. The currency fell as much as 0.1 percent to 41.283 earlier, the weakest level since Oct. 30. One- month implied volatility, a measure of exchange-rate swings used to price options, was steady at 4.80 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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