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Philippine Bonds Drop on Signs Economy Improving; Peso Weakens

Philippine 10-year bonds fell, pushing their yield to the highest level in almost six weeks, as President Benigno Aquino signaled faster economic growth that reduces the need for the central bank to cut borrowing costs.

The $200 billion Southeast Asian economy likely grew at least 5.2 percent in the first quarter, the fastest in more than a year, Aquino said in an interview on May 4. Bangko Sentral ng Pilipinas doesn’t see any need to adjust monetary policy soon as it monitors oil prices and growth, Governor Amando Tetangco said in an interview today. Inflation accelerated for the first time in four months in April.

“Inflation that was faster than expected suggested economic activity may be picking up,” said Speedy Delfino, a fixed-income trader at East West Bank Corp. in Manila. “There is less need for the central bank to cut rates.”

The yield on the 15 percent bonds due March 2022 rose eight basis points, or 0.08 percentage point, to 5.92 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. That is the highest level since March 28.

Consumer prices rose 3 percent in April from a year earlier, the government reported on May 4, compared with a 2.6 percent increase the previous month. The median estimate of economists in a Bloomberg survey was for a 2.6 percent gain.

Bangko Sentral kept its overnight borrowing rate at 4 percent last month after two reductions this year. The next policy meeting will be on June 14. First-quarter gross domestic product data will be released on May 31.

The peso fell 0.1 percent to close at 42.35 per dollar in Manila, according to Tullett Prebon Plc. One-month implied volatility, which measures exchange-rate swings used to price options, rose 30 basis points today to 5 percent. The Philippines is comfortable with an exchange rate of 41 to 45, Aquino said.

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