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Philippine Bonds Climb on Inflation, Rate Outlook; Peso Rises

Philippine bonds rose on speculation the central bank will leave borrowing costs unchanged tomorrow after inflation eased in May. The peso advanced to the highest level in a month.

Bangko Sentral ng Pilipinas will keep its benchmark interest rate at a record-low 4 percent, according to 14 of 15 economists surveyed by Bloomberg News. One expects a 25 basis point cut. Consumer prices increased 2.9 percent in May from a year earlier, compared with 3 percent in April, according to official data. Inflation has been at 3 percent or less for the last four months, compared with 2011 when it stayed above 4 percent all year.

“The favorable inflation outlook means the central bank will likely keep its rates unchanged for the year,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “There is no reason for bond yields to go up.”

The yield on the 5 percent government bonds due April 2019 fell five basis points, or 0.05 percentage point, from June 11 to 5 percent as of the close in Manila, according to Tradition Financial Services. Local financial markets were shut yesterday.

The peso climbed 0.7 percent to 42.635 per dollar in Manila, the strongest level since May 14, prices from Tullett Prebon Plc show. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 6.5 percent.

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