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Philippine Bonds Advance as Inflation Beats Estimate; Peso Drops

Philippine bonds due 2031 gained for a third day this week after official data showed inflation in December was slower than economists estimated. The peso had its biggest drop in more than three months, paring a weekly advance.

Consumer prices rose 2.9 percent from a year earlier, the National Statistics Office reported in Manila today, after a 2.8 percent increase in November. Analysts surveyed by Bloomberg expected a 3.1 percent gain. Central bank Governor Amando Tetangco said today inflation risks remain fairly balanced, suggesting current monetary policy is appropriate. Bangko Sentral ng Pilipinas cut its benchmark interest rate by 100 basis points in 2012.

“We reacted to the positive news on inflation and the positive outlook for local bonds in 2013,” said Jan Briace Santos, a debt trader who helps manage the equivalent of $17 billion at BPI Asset Management Inc. in Manila.

The yield on the government’s 8 percent notes due July 2031 fell two basis points, or 0.02 percentage point, to 5.47 percent as of 4 p.m. in Manila, according to prices from Tradition Financial Services. That’s the lowest level since Dec. 4. It declined eight basis points this week.

The peso weakened 0.4 percent to 40.905 per dollar in Manila, reducing its gain in the week to 0.4 percent, according to Tullett Prebon Plc. It advanced 6.8 percent last year, the best performance after South Korea’s won among Asian currencies.

Federal Reserve policy makers said they will probably end their $85 billion monthly bond purchases sometime this year, with members divided between a mid- or end-of-year finish, according to minutes of last month’s meeting that were released yesterday in Washington.

“The news in the U.S. is supportive of the dollar,” Santos said.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was unchanged at 4.3 percent today. It fell 20 basis points this week.

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