April 1 (Bloomberg) -- Philippine government bonds gained, pushing the 25-year yield to a record low, on speculation the nation’s first investment-grade rating will lure inflows. Stocks retreated from all-time high and the peso was little changed.
Fitch Ratings upgraded the country by one level to BBB- on March 27, the last day of trading before markets closed for the Easter break. The Philippine Stock Exchange Index rose as much as 1.6 percent to a record 6,956.92 today before closing 0.1 percent lower as share valuations reached the most expensive since at least 2005, according to data compiled by Bloomberg.
“We are seeing an offshoot of the debt ratings upgrade,” said James Lago, head of research at Manila-based PCCI Securities Brokers Corp. “Investment-grade only funds are probably starting to accumulate. I’d be mindful of valuations if I were in their shoes.”
The yield on the 6.125 percent bonds maturing in October 2037 dropped 13 basis points to 3.73 percent in Manila, the least since they were sold in October, according to prices from Tradition Financial Services. The rate tumbled 25 basis points last week and 109 basis points in March.
Local-currency government debt handed investors an 8 percent return last quarter, the most among 18 developing-nation country indexes published by JPMorgan Chase & Co., compared with an average 1.1 percent gain in the market.
The share index has climbed 18 percent this year as overseas investors bought $1 billion more Philippine stocks than they sold. Companies traded at 19.7 times 12-month estimated earnings, while shares in the MSCI Asia-Pacific Index are valued at 13 times. Thirty-day volatility on the gauge rose to 18.3, the highest level since July. SM Corp., the nation’s biggest company by market value, jumped 3.1 percent to an all-time high.
The peso was little changed at 40.838 per dollar, according to prices from Tullett Prebon Plc. The currency appreciated 0.6 percent this year, reaching a five-year high of 40.55 on Jan 14. One-month implied volatility, a measure of expected exchange-rate moves used to price options, rose 14 basis points to 3.91 percent, data compiled by Bloomberg show.
Currency gains were limited after central bank Governor Amando Tetangco said March 28 policy makers could unveil new measures this quarter giving local investors easier access to foreign currencies to help offset increased global demand for the nation’s assets. Overseas funds may also be banned from using the bank’s reverse-repurchase facility, he said.
“The central bank has been successful in curbing the peso rally by limiting foreign participation,” said Patrick Ella, an economist in Manila at Security Bank Corp.
Bangko Sentral ng Pilipinas has capped lenders’ currency forward positions, banned overseas funds from special-deposit accounts and trimmed the interest rate on those accounts twice this year.