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Philippine Bonds Weaken on Record Budget Deficit; Peso Declines

Philippine 10-year bonds fell, pushing the yield to a one-month high, after the government reported the budget deficit widened to a record in December. The peso weakened.

The shortfall was 101.5 billion pesos ($2.4 billion), the government said in a statement released in Manila today, compared with 22 billion pesos for November reported earlier. That is the highest since Bloomberg began tracking the data in 1994. President Benigno Aquino accelerated spending on roads and schools to bolster an economy struggling to counter the effects of Europe’s debt crisis.

“The market found the high deficit as an excuse for pushing the yields up,” said Jonathan Ravelas, market strategist at BDO Unibank Inc. in Manila.

The yield on the government’s 6.375 percent bonds due January 2022 increased four basis points, or 0.04 percentage point, to 5.31 percent, according to noon fixing prices from the Philippine Dealing & Exchange Corp. That was the highest level since Jan. 31. The rate reached a record low of 4.98 percent on Feb. 21.

The full-year budget gap was 197.8 billion pesos last year, compared with a record 314.5 billion pesos in 2010.

The Philippine peso retreated from its highest level in more than a week as regional equities fell and on concern a prolonged crisis in Europe will hurt growth.

‘Sector Headwinds’

Greece’s private creditors are due to decide this week whether to sign off on the biggest sovereign-debt restructuring in history. Chinese Premier Wen Jiabao said today the world’s second-biggest economy may expand 7.5 percent this year, the lowest target since 2004. The peso has appreciated 2.3 percent in 2012 as foreign funds bought $546 million more local stocks than they sold through March 2, according to exchange data.

“For me the peso has really done well year-to-date,” said Nizam Idris, a currency strategist at Macquarie Group Ltd. in Singapore. “The issue is whether appreciation can continue even as global growth is likely to slow. There’s fear over what’s going on in Europe.”

The peso declined 0.4 percent to 42.88 per dollar at the close in Manila, according to Tullett Prebon Plc. The currency touched 42.603 on March 2, the strongest level since Feb. 21. The MSCI Asia-Pacific Index of shares slid 0.9 percent.

The success of Greece’s 106 billion-euro ($140 billion) debt swap depends on how many investors agree to the writedown by a March 8 deadline. Euro-area finance ministers will hold a teleconference on March 9 to review the deal’s outcome.

Rate Cut

Bangko Sentral ng Pilipinas cut interest rates for a second time this year on March 1 to shore up growth. The government will probably report tomorrow that consumer-price gains slowed to 3.2 percent in February from 3.9 percent in January, according to the median estimate of economists in a Bloomberg News survey. That would be the least since October 2009.

“Global economic conditions are expected to stay subdued as fiscal and banking sector headwinds in advanced economies affect global output growth and as market confidence remains fragile,” Bangko Sentral said in a statement on March 1. Policy makers cut the rate on overnight deposits by 25 basis points, or 0.25 percentage point, to 4 percent last week.

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