The Philippine peso posted its biggest weekly decline in more than a month as an improving U.S. economy bolstered the case for a reduction in Federal Reserve stimulus. Five-year bond yields fell to a two-month low.
The currency dropped 0.7 percent this week to 43.61 per dollar in Manila, according to Tullett Prebon Plc. It declined as much as 0.4 percent today to 43.72, the weakest level since July 8, and closed down 0.1 percent. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 11 basis points to 6.13 percent.
The peso at 42 to 44 per dollar is a “good range,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a July 29 interview. The currency’s weakness has a minimal impact on inflation, which the central bank expects to be within target this year and next, giving Tetangco scope to hold interest rates through 2014. U.S. Treasury yields climbed this week ahead of jobless data later today, after claims for unemployment benefits dropped to a five-year low.
“The possibility of U.S. tapering and rising U.S. yields spurred a dollar rally,” said Alan Cayetano, head of foreign-currency trading at Manila-based Bank of the Philippine Islands, the nation’s largest lender by market capital. “Tetangco’s comments affirmed what the market already gauges from BSP action showing where their comfort level is.”
The yield on the Philippines’ 2.125 percent notes due May 2018 fell 22 basis points, or 0.22 percentage point, to 2.63 percent this week, the lowest level since June 7, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate dropped 12 basis points today.
Ten-year U.S. yields advanced 17 basis points during the five days to 2.73 percent, approaching a 23-month high of 2.75 percent reached on July 8. The Labor Department may report today that employers created 185,000 jobs last month after boosting positions by 195,000 in June, according the median estimate of economists surveyed by Bloomberg.
Fed Chairman Ben S. Bernanke will trim the central bank’s monthly purchases of Treasury and mortgage debt to $65 billion in September, from the current pace of $85 billion, according to half of 54 economists surveyed by Bloomberg from July 18-22.
Moody’s Investors Service placed the Philippines credit rating on review for a possible upgrade to investment status on July 25. Treasurer Rosalia de Leon said July 30 that such a move from the rating company is imminent.
The Philippines long-term foreign and local-currency denominated debt are rated Ba1 by Moody’s, the highest junk rating. Standard & Poor’s and Fitch Ratings raised the Asian nation to investment grade in the first half.
Philippine government securities handed investors a 3.2 percent return in July, after a record 7.3 percent loss in the second quarter. They’ve delivered 9.2 percent so far in 2013 and are the best performers for the year among 10 local-currency bond markets in Asia tracked by HSBC Holdings Plc.
“The Philippines economic performance has exceeded Moody’s expectations, supporting the view that the economy will grow significantly faster than similarly rated peers over at least the next two to three years,” Moody’s analysts Christian de Guzman and Bart Oosterveld said in a statement last week.
The peso may climb to 37 per dollar in 2015, when Philippine economic growth will probably surpass 8 percent, Marios Maratheftis, Standard Chartered Bank’s head of research, said at a briefing in Manila yesterday.
“The peso has a natural tendency to appreciate on factors including a possible rating upgrade from Moody’s,” Cayetano at Bank of the Philippine Islands said. He expects the peso to end the year at 42 per dollar.