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Philippine Bonds Gain, Swaps Near Record Low on Odds for Easing

Philippine six-year bonds rallied for a fourth day and interest-rate swaps were near a record low on speculation slowing inflation will give the central bank more room to cut borrowing costs.

Bangko Sentral ng Pilipinas has reduced its benchmark rate four times this year to 3.5 percent, most recently on Oct. 25. Consumer prices rose 3.1 percent in October from a year earlier, the least in four months, the government reported this week.

“The latest inflation data increases the probability that BSP will deliver another rate cut in December,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila.

The yield on the 5 percent bonds due August 2018 fell four basis points, or 0.04 percentage point, to 4.2 percent as of the close in Manila, according to prices from Tradition Financial Services. That’s the lowest level since the notes started trading in August last year.

One-year interest-rate swaps rose five basis points to 1.3 percent after touching 1.25 percent yesterday, the lowest level in Bloomberg data going back to 2003. The next policy meeting is scheduled for Dec. 13.

The Philippines plans to sell 10-year global peso notes and will buy back as much as $1.5 billion of dollar debt, according to a statement from the government today. The peso securities will be sold at a yield of around 4.1 percent, a person familiar with the deal who declined to be named because the details are private, said today.

Peso Volatility

The peso was little changed at 41.052 per dollar, just shy of 41.050 reached yesterday that was the weakest since March 2008, according to prices from Tullett Prebon Plc. One-month implied volatility, a measure of exchange-rate swings used to price options, held at 4.7 percent.

Bangko Sentral Deputy Governor Diwa Guinigundo said in a text message yesterday that the authorities have been “very vigilant” in curbing volatility in the peso. Prolonged currency appreciation could be “destabilizing,” he added.

The peso has strengthened 6.8 percent this year, the best performance among Asia’s most-traded currencies.

The central bank has imposed higher capital charges on non-deliverable forwards, banned overseas funds from special-deposit accounts and liberalized foreign-currency regulations to boost demand for dollars, Guinigundo said. The monetary authority has also encouraged the government and companies to pay international debt ahead of schedule, he said.

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