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Philippine Bonds, Peso Rise as Deficit Spurs Upgrade Optimism

Philippine bonds gained, erasing earlier losses, as data showing a narrowing budget deficit heightened speculation the nation may get a credit-rating upgrade. The peso strengthened.

The shortfall in January narrowed to 15.9 billion pesos ($369 million) from 101.5 billion pesos in December, official data today showed. The government is “hopeful” of a rating upgrade from Standard & Poor’s after economic officials met with representatives of the company this week, presidential spokesman Edwin Lacierda told reporters today.

“The recurring theme of a possible rating upgrade is bond friendly,” said Bunny Bernardo-Recto, vice president at Chinatrust Philippines Commercial Bank Corp. in Manila. “Expectations are that the government will be on track with the spending plan to support growth.”

The yield on the 6.375 percent bonds due January 2022 fell 20 basis points, or 0.20 percentage point, to 5.45 percent as of 4:25 p.m. in Manila, according to Tradition Financial Services. The yield rose 10 basis points earlier, to the highest level since Nov. 17.

Economic growth will probably accelerate this year on increasing signs of a U.S. recovery, the “emerging stability” in Europe and as the government lifts spending, central bank Governor Amando Tetangco said at a bankers’ forum in Manila today.

Bangko Sentral ng Pilipinas reduced the overnight borrowing rate by 50 basis points this year to 4 percent, with the next review due April 19. Government spending in January rose 16.2 percent from a year earlier, slowing from a 43.2 percent increase in December.

The peso closed 0.1 percent higher at 43.030 per dollar, according to Tullett Prebon Plc. One-month implied volatility, which measures exchange-rate swings used to price options, was steady at 6.1 percent.

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