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Philippine Peso Has First Weekly Drop in September; Bonds Fall

The Philippine peso completed its first weekly decline this month on concern recent gains were excessive and as the risk of a potential U.S. government shutdown deterred investors. Bonds fell.

The peso reached a three-month high earlier in the week, prompting central bank Governor Amando Tetangco to warn on Sept. 25 that the authority will respond to “excessive market exuberance or disappointment.” The U.S. Congress has until the end of this month to agree on spending measures before the government hits its borrowing limit in October.

“The uncertainty in the U.S. is affecting sentiment to a certain extent,” said Joey Cuyegkeng, an economist at ING Groep NV in Manila. “A correction was expected after three weeks of appreciation in the currency.”

The peso weakened 0.7 percent in the past five days to 43.333 per dollar in Manila, paring this month’s advance to 2.9 percent, data from Tullett Prebon Plc show. It fell 0.2 percent today and touched 43.01 on Sept. 23, the highest level since June 18.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, slid 13 basis points, or 0.13 percentage point, this week to 6.03 percent.

Government bonds snapped a two-week advance. The yield on the 8 percent notes due July 2031 climbed 28 basis points to 5.00 percent, according to prices from Tradition Financial Services. The rate rose five basis points today.

The Philippine central bank appears resistant to the peso’s strength, and it probably intervened around the 43 per dollar level after the Federal Reserve meeting on Sept. 18, analysts at Credit Suisse Group AG led by Singapore-based Ray Farris wrote in a report on Sept. 25. Credit Suisse is bearish in the “near term” on the peso, according to the report.

The Fed surprised markets on Sept. 18 when it decided to maintain its $85 billion a month bond-purchase program that has fueled appetite for emerging-market assets.

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