Philippine Bonds Advance as Fitch Says Public Finances Improved

Philippine two-year bonds rose the most in six weeks on speculation the nation is edging closer to investment-grade status. The peso strengthened.

Public finances “are no longer considered a weakness” in the Philippines’ credit profile, Philip McNicholas, director of Asia Pacific Sovereigns at Fitch Ratings, said on a conference call yesterday. The Philippines has the highest junk rating from Fitch, Moody’s Investors Service and Standard & Poor’s. S&P raised its outlook to positive on Dec. 20, hours after President Benigno Aquino enacted higher taxes on tobacco and liquor.

“The market is expecting revenue to increase further with the implementation of the sin tax and with the improvements we’re seeing, it’s not unreasonable to anticipate an upgrade,” said Roland Avante, president of Philippine Business Bank in Manila. “Less frequent government debt auctions added to signs that finances have improved. The influx of liquidity is also helping”

The yield on the 12.25 percent notes due October 2014 fell four basis points, or 0.04 percentage point, to 2.94 percent, the lowest since Nov. 23, according to midday fixing prices at Philippine Dealing & Exchange Corp.

Gross domestic product growth last year may have exceeded the government’s 5 percent to 6 percent forecast, Economic Planning Secretary Arsenio Balisacan said this week. Expansion this year may be closer to the top end of a 6 percent to 7 percent official estimate, central bank Deputy Governor Diwa Guinigundo told state-owned television on Jan. 7.

“More efficient fiscal spending is resulting in stronger GDP growth outturns and at the same time seeing sustained benign inflation outcomes that have allowed the central bank to maintain an accommodative stance,” McNicholas said.

The peso rose 0.2 percent to 40.785 per dollar at the close in Manila, Tullett Prebon Plc showed. One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose five basis points to 4.1 percent.

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