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Philippine Bonds Advance as Inflation Slows; Peso Little Changed

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Dec. 5 (Bloomberg) -- Philippine 25-year sovereign bonds rose for a sixth day and the peso climbed to near a four-year high after inflation eased to the slowest pace since June.

Consumer prices rose 2.8 percent from a year earlier last month after increasing 3.1 percent in October, the National Statistics Office said today. The median forecast of economists surveyed by Bloomberg was for a 3 percent gain. The central bank’s benchmark interest rate is at a record low following four cuts this year and borrowing costs will next be reviewed on Dec. 13. There’s less need to stimulate the economy using monetary policy, Governor Amando Tetangco said Dec. 3.

“Yields will still be down,” said Radhika Rao, an economist at Forecast Pte in Singapore. “Inflation risks are very much contained” and there is little need for borrowing costs to be raised, she said.

The yield on the 6.125 percent notes due October 2037 declined three basis points, or 0.03 percentage point, to 5.55 percent as of 4:19 p.m. in Manila, according to prices from Tradition Financial Services. That was the lowest level since the notes were issued in October.

The peso strengthened 0.1 percent to 40.852 per dollar, according to Tullett Prebon Plc. The currency reached 40.840 on Nov. 29, the strongest level since March 2008. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was unchanged at 4.40 percent.

The central bank lowered the overnight borrowing rate to 3.5 percent in October, saying the cut would help address capital flows. The peso has rallied 7.3 percent against the dollar this year, the second-best performance among Asia’s 11 most-used currencies. Gross domestic product rose 7.1 percent in the third quarter from a year earlier, the most in two years, official data showed last week.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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