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Philippine 20-Year Bonds Drop on Supply; Peso Advances

Philippine 20-year bonds declined, paring their biggest monthly gain this year, on speculation additional supply of long-term notes will push yields higher. The peso advanced.

Deputy Treasurer Eduardo Mendiola said yesterday the government is considering selling 25-year securities to retail investors and may offer notes of maturities from seven to 25 years in a debt swap this year. The yield on the bonds due 2032 slid 29 basis points this month as slowing inflation prompted the central bank to cut its overnight borrowing rate for a third time this year to a record low of 3.75 percent on July 26.

“News of the retail bonds and debt swap will put pressure on long-end bonds,” said Speedy Delfino, a fixed-income trader at East West Bank Corp. in Manila. “There’s also a correction as month-end profits are being booked. Generally, fundamentals would support lower yields.”

The yield on the government’s 5.875 percent bonds due March 2032 increased five basis points, or 0.05 percentage point, to 5.74 percent in Manila, according to noon fixing prices from the Philippine Dealing & Exchange Corp. The notes returned 3.4 percent this month, the most since the debt was issued this year.

Philippine bonds have returned 15 percent in the past year, a performance second only to Indonesia in Asia’s 10 biggest economies excluding Japan, HSBC Holdings Plc local-currency bond indexes show.

Strengthening Peso

The peso rose 0.5 percent to 41.74 per dollar in Manila and has strengthened 1 percent this month, according to Tullett Prebon Plc. It has appreciated 5 percent in 2012, the biggest gainer among Asia’s 11 most-active currencies, data compiled by Bloomberg show. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 6.25 percent and slipped five basis points this month.

Consumer prices rose 2.8 percent in June from a year earlier, the slowest pace in three months. Inflation will settle within the lower half of the central bank’s 3 percent to 5 percent target range this year and in 2013, Governor Amando Tetangco said last week.

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