Philippine Bonds Rise on Deposit-Rate Cut Speculation; Peso Up

Philippine bonds rose, with the 25- year yield dropping to the lowest in at least a decade, amid speculation the central bank will add to this year’s two reductions in the rate paid on special deposit accounts.

The monetary authority will probably reduce the rate by another 50 basis points, Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc, said at a briefing in Manila today. The rate was last lowered on March 14 to 2.5 percent from 3 percent to deter speculation in the peso, which has strengthened 6.8 percent in the past year. Only South Korea’s won gained more among Asia’s 11 most-traded currencies.

“The Philippine central bank is not expected to give too much for idle funds as it wants to deter speculation,” Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd., said in Singapore. “This will induce a substitution effect where some of the funds from the special deposit accounts will go into bonds.”

The yield on the 6.125 percent 25-year bonds dropped eight basis points, or 0.08 percentage point, to 3.99 percent, according to Tradition Financial Services. That is the lowest level for a benchmark 25-year note since Bloomberg started compiling the data in November 2000.

The nation sold 25 billion pesos ($614 million) of 2033 notes to yield 3.52 percent, the lowest on record, Philippines Deputy Treasurer Eduardo Mendiola said today.

The peso appreciated 0.1 percent to close at 40.690 per dollar in Manila, Tullett Prebon Plc prices showed. One-month implied volatility in the peso, a gauge of expected moves in the exchange rate used to price options, fell six basis points to 3.67 percent.

To contact the reporter on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

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

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