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Philippine 3-Year Bonds Rise as Money Supply Expands; Peso Gains

Philippine bonds rose, pushing the yield on three-year benchmark debt to the lowest in more than two months, as inflation stayed below the central bank’s target and money supply growth accelerated. The peso advanced.

Consumer prices gained 2.5 percent in July from a year earlier, the slowest pace since September 2009, the government reported on Aug. 6. That puts the seven-month average at 2.9 percent, below the central bank’s 3 percent to 5 percent goal. Money supply growth of 20.3 percent in June, the fastest in six years, isn’t inflationary, central bank Deputy Governor Diwa Guinigundo said on July 31 after the data’s release.

“The market realizes that domestic liquidity is robust while inflation is under control, economic growth is sustainable, another credit-rating upgrade is possible and that the central bank isn’t likely to raise rates anytime soon,” said Ricky Cebrero, executive vice president and head of treasury at Manila-based Philippine National Bank.

The yield on the 7 percent bonds due April 2016 fell three basis points, or 0.03 percentage point, to 2.41 percent, the lowest since May 17, according to a midday fixing at Philippine Dealing & Exchange Corp. The notes gained for a fourth week. Financial markets are shut tomorrow for the Eid’l Fitr holiday.

The peso rose 0.2 percent today and was little changed for the week at 43.56 per dollar, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped four basis points to 5.45 percent.

Rating Upgrade

Moody’s Investors Service may join Standard & Poor’s and Fitch Rating in awarding the Philippines investment-grade status as soon as this quarter, central bank Governor Amando Tetangco said on July 26.

The nation’s long-term foreign and local-currency denominated debt are rated Ba1 by Moody’s, the highest junk rating, while S&P and Fitch raised the Asian nation to investment grade in the first half.

Bangko Sentral ng Pilipinas, which kept overnight borrowing costs at 3.5 percent and its special-deposit account rate at 2 percent at a July 25 meeting, has room to keep interest rates unchanged through 2014, Tetangco said in a July 29 interview.

The $250 billion economy probably expanded more than 7 percent in the second quarter, Philippine National Bank’s Cebrero said, adding that the nation can sustain similar growth for the rest of this year. Gross domestic product rose 7.8 percent in the three months ended March, outpacing China to become the fastest-growing in Asia.

The peso may strengthen to 42 against the dollar in the fourth quarter on increased inflows because Filipinos working overseas traditionally send more money home for the Christmas and New Year season, Cebrero said.

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