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Philippine 25-Year Bonds Rise as Tetangco Signals More SDA Cuts

Philippine 25-year bonds rose, pushing the yield to the lowest level in more than a decade, after the central bank signaled it may further cut interest rates on special-deposit accounts.

Bangko Sentral ng Pilipinas hasn’t maximized the use of the SDA rate, Governor Amando Tetangco said in a Bloomberg Television interview today. The monetary authority trimmed the deposit rate to 2.5 percent from 3 percent yesterday, the second reduction of 2013. It expects inflation to average 3.3 percent this year and next, compared with a 3 percent to 5 percent target range, Assistant Governor Cyd Amador said yesterday.

“When the governor said he’s not maxed out on the SDA yet, he is consistent with earlier pronouncements that inflation is benign and gives them room to cut borrowing costs,” said Ricky Cebrero, head of treasury at Philippine National Bank in Manila. “Some funds in SDAs will probably go to stocks or government bonds, most likely in longer-dated debt.”

The yield on the 6.125 percent notes due October 2037 fell 15 basis points, or 0.15 percentage point, to 4.67 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate fell 14 basis points this week and is at the lowest for a benchmark 25-year bond since November 2000 when Bloomberg started compiling the data.

Peso Gains

The central bank also set interest rates on all maturities of its reverse-repurchase facility at 3.5 percent yesterday, the same as the benchmark overnight borrowing rate.

The peso closed little changed at 40.607 per dollar and rose 0.2 percent this week, according to Tullett Prebon Plc. It’s the best performing emerging-market currency in the last 12 months with a gain of 6 percent.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed at 3.61 percent.

The two SDA cuts this year will give the monetary authority about 20 billion pesos ($492 million) in annual savings, Amador said.

“Savings on interest expenses are not the driver of our policy moves, although this may be a welcome byproduct,” Tetangco said today. Bangko Sentral intervenes in the foreign-currency market “every now and then” to curb excessive volatility, he said.

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