Philippine Five-Year Bonds Drop as Record-Low Yield Damps Demand

Philippine five-year bonds fell for the first time in four days on speculation demand cooled after the yield declined to a record last week. The peso was steady.

The yield on the government notes due 2018 reached 3.5 percent on Feb. 8, the lowest level since they were issued in 2011. The rate slid 43 basis points last month as the central bank cut the interest rate on almost 1.7 trillion pesos ($42 billion) in its special-deposit accounts to 3 percent, while holding the benchmark overnight rate at 3.5 percent.

“The rally in the local government securities market is a little bit overdone,” said Rafael Algarra, executive vice president at Security Bank Corp. in Manila. “The market has already absorbed the effects of the cut in special-deposit account rates. We are going to start seeing defensive postures as some people take profit.”

The yield on the 5 percent bonds due August 2018 rose seven basis points, or 0.07 percentage point, to 3.57 percent as of 4:44 p.m. local time, according to prices from Tradition Financial Services.

The peso closed at 40.690 per dollar, compared with 40.678 at the end of last week, data from Tullett Prebon Plc show. One- month implied volatility, a measure of expected moves in exchange rates used to price options, was unchanged at 4.25 percent.

To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net

To contact the editor responsible for this story: Anil Varma at avarma3@bloomberg.net

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