Philippine Bonds Rise on Supply Outlook; Peso Surrenders Gains

Philippine bonds advanced as a government decision to hold fewer debt auctions this quarter spurred investors to buy in the secondary market. The peso retreated from its highest level in more than four years.

The government will borrow twice a month in the first quarter instead of weekly, Treasurer Rosalia de Leon said in a memo to dealers last month. The Philippines will next sell 25 billion pesos ($492 million) of seven-year notes due 2020 on Jan. 22. Optimism the nation will edge closer to an investment- grade credit rating will support Philippine bonds, said Jan Briace Santos, a debt trader who helps manage the equivalent of $17 billion at BPI Asset Management Inc.

“No auction this week; those looking to invest they’re into the secondary market,” Manila-based Santos said. “The bond market is bullish because we’re still looking forward to the rating upgrade.”

The yield on the government’s 5 percent notes due August 2018 fell five basis points, or 0.05 percentage point, to 4 percent as of 10:40 a.m. in Manila, according to prices from Tradition Financial Services. That was the biggest drop since Jan. 3.

The Philippines is assessed at the highest junk rankings by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. S&P raised its outlook to positive on Dec. 20, hours after President Benigno Aquino enacted higher taxes on tobacco and liquor.

The peso fell 0.1 percent to 40.645 per dollar in Manila, compared with 40.605 at the end of last week, according to Tullett Prebon Plc. The currency reached 40.55 earlier, the strongest level since March 2008.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 10 basis points to 4 percent today.

The central bank will continue to maintain its presence in the currency to curb excessive volatility, Governor Amando Tetangco said in an e-mail today.

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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