Philippine 20-Year Bonds in Best Quarter Since 2006 on Rate Cut

The yield on Philippine 20-year bonds had its biggest quarterly drop in seven years after the central bank cut interest rates on special-deposit accounts twice in 2013 and signaled further reductions. The peso rose.

Bangko Sentral ng Pilipinas reduced the rate on the accounts by about half a percentage point each in January and March. The monetary authority hasn’t fully utilized the SDA rate, Governor Amando Tetangco said in a Bloomberg Television interview on March 15, a day after lowering it to 2.5 percent from 3 percent and setting a unified rate of 3.5 percent for all maturities in its reverse-repurchase borrowing facility. Markets are shut for the Easter break over the next two days.

“The two SDA rate reductions brought down interest rates across the board and the market expects BSP to make further cuts,” said Jonathan Ravelas, the Manila-based chief market strategist at BDO Unibank Inc., the nation’s largest lender. “Inflation may be bottoming out and once the central bank is done with the SDA cuts, probably by the second half, there could be a bounce in yields.”

The yield on bonds due March 2033 fell 2.15 percentage points this quarter to 3.82 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. That’s the biggest quarterly drop since the three months ended March 2006, according to data compiled by Bloomberg. The rate rose four basis points today from yesterday’s record of 3.78 percent.

The peso strengthened 0.2 percent to 40.995 per dollar at the noon trading break in Manila, according to Tullett Prebon Plc. The currency fell to 41.070 yesterday, this year’s lowest level, and was little changed for the quarter. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose nine basis points to 3.66 percent.

Special Accounts

There were 1.9 trillion pesos ($47 billion) in the central bank’s special-deposit accounts and 280.9 billion pesos in the reverse-repurchase facility as of March 8, latest data show.

“The use of the SDA rate hasn’t been fully exploited or maximized, so we will be reviewing the situation on a continuing basis,” Tetangco said on March 15.

Bangko Sentral will soon discuss a plan to ban foreign funds from placing money in its reverse-repurchase facility, Assistant Governor Cyd Amador said on March 21. It prohibited overseas investors from its special-deposit accounts in July. The central bank will monitor overseas borrowings of Philippine companies as it encourages the use of domestic funds, Deputy Governor Diwa Guinigundo told reporters on March 22.

Consumer prices may rise 2.8 percent to 3.7 percent this month, compared with 3.4 percent in February, Tetangco said this week. He forecast faster economic growth in 2013 amid manageable inflation and low interest rates in a March 22 speech e-mailed by his office yesterday.

The $225 billion economy expanded 6.6 percent in 2012, the fastest pace in Asia after China. Growth may be 6 percent to 7 percent this quarter, Economic Planning Secretary Arsenio Balisacan said this week. The government will report March inflation data on April 5 and first-quarter results on May 30.

To contact the reporter on this story: Clarissa Batino at

To contact the editor responsible for this story: James Regan at

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