Philippine Two-Year Bonds Drop on Interest-Rate Speculation

Philippine two-year bonds fell, with the yield climbing the most in more than three weeks, on speculation the central bank will tighten monetary policy.

The two-year yield advanced for a third day before the government auctions 25 billion pesos ($562 million) of notes of the same tenor today. Bangko Sentral ng Pilipinas may take further action if necessary, depending on data before the next rate-setting meeting on May 8, Deputy Governor Diwa Guinigundo told reporters in Manila today. The central bank raised banks’ reserve-requirement ratios effective April 4.

The yield on the benchmark 7.5 percent notes due March 2016 increased 12 basis points to 2.94 percent, according to noon fixing prices from the Philippine Dealing Exchange Corp. That was the biggest increase since March 28 and took the gain over three days to 19 basis points, or 0.19 percentage point.

“The central bank might reduce its accommodative stance at the upcoming meeting,” said Jan Briace Santos, a debt trader who helps manage the equivalent of $16 billion at BPI Asset Management in Manila. “There are expectations rates will rise.”

The Philippine economy can withstand higher interest rates, the central bank’s Guinigundo said on April 12. The monetary authority held its benchmark rate at 3.5 percent on March 27. Inflation figures for April are due May 6, two days before the policy review.

The peso declined 0.2 percent to 44.507 per dollar as of 12:54 p.m. in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was steady at 4.93 percent.

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