Philippine Three-Year Bonds Rally as Special Account Rates Cut

Philippine three-year bonds rose, pushing the yield to a one-year low, after the central bank cut rates on the so-called special-deposit accounts and predicted an upgrade in the sovereign debt rating. The peso fell.

Demand rose for the relatively high yields on government securities after Bangko Sentral ng Pilipinas reduced rates on almost 1.7 trillion pesos ($42 billion) lodged in the accounts to 3 percent even as it maintained the benchmark overnight borrowing rate at a record low 3.5 percent. The move was meant to lower the monetary authority’s costs, Governor Amando Tetangco told Bloomberg Television today. The nation will probably win a credit upgrade in the first half, he said.

“Bidders scampered to lock in yields as BSP lowered its SDA rate,” said Bunny Bernardo-Recto, vice president at Chinatrust Philippines Commercial Bank Corp. in Manila. “Much value is seen in the medium to longer end of the curve from the BSP move, coupled with expectations of benign inflation and a credit-rating upgrade.”

The yield on the 7 percent bond due January 2016 fell 29 basis points, or 0.29 percentage point, to 3.47 percent, the lowest level since Jan. 5, 2012, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate fell the most since June 2012.

The peso fell 0.2 percent to 40.695 per dollar at the noon trading break in Manila, set for its first weekly decline in more than a month, according to Tullett Prebon Plc prices. It climbed to 40.55 on Jan. 14, the strongest since March 2008. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 4 percent.

“After getting upgrade after upgrade, we are on the cusp of investment-grade status,” President Benigno Aquino said in a speech in Davos yesterday, the copy of which was posted on the government website. Standard & Poor’s ranks the Philippines at BB+, the highest non-investment grade. The rating was last raised by a level in July.

The central bank’s special-deposit accounts previously paid 3.53 percent for a week, 3.59 percent for two weeks and 3.66 percent for a month.

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