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Philippine Bonds Decline as Inflation Accelerates; Peso Weakens

Philippine 10-year government bonds dropped the most since March as inflation quickened from a 30-month low. The peso declined, paring a weekly gain.

Consumer prices rose 3 percent in April from a year earlier after increasing 2.6 percent in March, the National Statistics Office said in Manila today. The acceleration gives the central bank “less incentive” to add to this year’s two interest-rate cuts, according to Allan Yu, first vice-president at Metropolitan Bank & Trust Co.

“Inflation is a little bit higher,” said Manila-based Yu. “We will have to see in the next few months if there is going to be a trend toward increasing inflation.”

The yield on the 6.5 percent bonds due April 2021 climbed six basis points, the most since March 19, to 5.30 percent as of 4 p.m. in Manila, according to prices from Tradition Financial Services. It dropped eight basis points, or 0.08 percentage point, this week.

The faster inflation for April shows that a pause in interest-rate cuts was necessary given the “high probability” of upside risks to price pressures, central bank Deputy Governor Diwa Guinigundo said in a mobile-phone message today. Still, inflation will remain within the 3 percent to 5 percent target this year and next, he said.

Growth Concern

The peso slid the most in more than a month after data showed U.S. service industries rose less than estimated and as Australia’s central bank lowered its economic growth forecast, reigniting concerns about the global recovery.

The peso fell 0.3 percent to 42.320 per dollar, trimming this week’s advance to 0.1 percent, according to Tullett Prebon Plc. One-month implied volatility, a measure of exchange-rate swings used to price options, increased 20 basis points today and 40 basis points this week to 4.7 percent.

The Reserve Bank of Australia said today it sees average growth of 3 percent in 2012, down from its February estimate of 3.5 percent. The U.S. Institute for Supply Management said yesterday its non-manufacturing index fell to a four-month low of 53.5 in April from 56 in March. The median forecast of economists surveyed by Bloomberg News was 55.3. A reading above 50 in the Tempe, Arizona-based group’s gauge signals expansion.

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