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Philippine Bonds Gain Most in Two Months as Inflows Seen Rising

Philippine 19-year government bonds climbed the most in almost two months on speculation overseas investors increased holdings to benefit from the nation’s improving economy. The peso was steady.

The bonds gained for a fifth day even after Bangko Sentral ng Pilipinas Governor Amando Tetangco signaled the authority will refrain from cutting interest rates this month after four reductions this year. Gross domestic product rose 7.1 percent in the third quarter from a year earlier, the most in two years, official data showed last week.

The yield on the 8 percent sovereign notes due July 2031 dropped eight basis points, or 0.08 percentage point, to 5.47 percent as of 4:13 p.m. in Manila, according to prices from Tradition Financial Services. That was the lowest level since February. Twenty-year bonds in South Korea pay 3.13 percent.

“If there’s no cut this month, it gives the market time to buy bonds,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. (RCB) in Manila. “Offshore players want exposure to the Philippine economy. Our yields are higher than those of our neighbors. Local banks are also awash with pesos.”

The central bank last reduced its overnight borrowing rate on Oct. 25 to 3.5 percent to spur economic growth and damp gains in the peso that has strengthened 7.2 percent against the dollar this year. The next review is on Dec. 13. Central bank rates are at 3 percent in Malaysia and 2.75 percent in Thailand.

Inflation Outlook

Consumer prices increased 3 percent last month from a year earlier, compared with 3.1 percent in October, according to the median estimate of economists surveyed by Bloomberg before a report due tomorrow. That would be the lowest level in five months.

The peso closed at 40.875 per dollar, compared with 40.885 yesterday, according to Tullett Prebon Plc. The currency reached 40.840 on Nov. 29, the strongest level since March 2008. One- month implied volatility, a measure of expected moves in the exchange rate used to price options, was unchanged at 4.40 percent.

The monetary authority is mindful of the peso’s move compared with regional currencies, Tetangco said in an e-mail yesterday. The exchange rate remains market-determined “with scope for official action in face of potential excessive volatility,” he said.

The Philippine central bank ordered lenders to set aside more cash to cover risks on currency forwards this year. In July, it banned foreign funds from its special-deposit accounts that pay more than government Treasury bills. It cut the overnight borrowing rate to a record 3.5 percent in October to help reduce the appeal of the nation’s higher-yielding assets.

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

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

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