Philippine three-year bonds gained, pushing the yield to the lowest level in more than a decade, on speculation investors are switching to fixed-income securities on odds for a cut in interest rates on central bank deposits.
Bangko Sentral ng Pilipinas lowered the rate on $46 billion of special-deposit accounts to 3 percent from more than 3.5 percent on Jan. 24 to help curb capital inflows, which have made the peso the best performing emerging-market currency in the past 12 months. The BSP will keep its benchmark overnight borrowing rate at a record low of 3.5 percent tomorrow, according to all 16 economists in a Bloomberg News survey.
“Speculation in the market is the BSP will cut the SDA rate by 25 basis points to 50 basis points,” said Malou Liwag, a senior vice president at Philippine National Bank in Manila. “If that materializes, that could mean more funds moving to the debt market.”
The yield on the 6 percent bonds due March 2016 fell three basis points, or 0.03 percentage point, to 2.61 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. That’s the lowest rate for a three-year benchmark note since Bloomberg started tracking the data in October 2000.
The central bank can’t rule out another cut in the deposit rate, Governor Amando Tetangco told reporters in Manila yesterday. The government is watching capital flows and is preparing for outflow risks, Finance Secretary Cesar Purisima said yesterday.
The peso gained 0.1 percent to 40.597 per dollar at the noon trading break in Manila, according to Tullett Prebon Plc. It reached 40.55 earlier, the highest level since Feb. 14, and has appreciated 5.2 percent in the past 12 months, data compiled by Bloomberg show. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose three basis points to 3.76 percent.
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