Philippine Bonds Decline as Inflation Accelerates; Stocks Rally

Philippine bonds fell, pushing the two-year yield to the highest level since June, after the government reported the fastest inflation in three months. Stocks climbed to a record.

Consumer prices rose 3 percent in January from a year earlier, after a 2.9 percent advance in December, the National Statics Office said in Manila today. The rate matched the median estimate of 17 economists in a Bloomberg News survey. Bangko Sentral ng Pilipinas, which held its benchmark overnight rate at a record-low 3.5 percent last month, is watchful of domestic and global demand conditions as well as asset prices, Governor Amando Tetangco said today.

“We continue to expect inflation to average 4.1 percent in 2013, above the mid-point of the central bank’s 3 percent to 5 percent inflation target,” Prakriti Sofat, a regional economist in Singapore at Barclays Plc, wrote in a research note today. “Our base case remains for the BSP to raise the policy rate by 25 basis points in the fourth quarter.”

The yield on the 12.25 percent bonds due October 2014 increased 15 basis points, or 0.15 percentage point, to 3.2 percent, the highest for benchmark two-year debt since June 26, according to midday fixing prices at Philippine Dealing & Exchange Corp.

Five-year yields rose six basis points to 3.85 percent and the 10-year rate added two basis points to 4.21 percent.

The Philippine Stock Exchange Index advanced 0.5 percent to 6,470.49 at the close in Manila, rising for a third day.

‘Manageable Inflation’

“Inflation at 3 percent for January continues to support our outlook for manageable inflation over the policy horizon and that our policy stance is still appropriate,” Tetangco said today. “That said, we remain watchful of domestic demand conditions and developments on the global front, particularly changes in growth expectations in the advanced economies, to see if these could begin to put any pressure on our own domestic inflation.”

The peso fell 0.1 percent to 40.643 per dollar at the close in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 4.5 percent.

Capital inflows may lead to a “perfect storm” in the global economy and spur emerging-market currency appreciation, Mexico central bank Governor Agustin Carstens said in Singapore today. The Philippines has to manage peso appreciation as sustained currency strength affects competitiveness of exporters and outsourcing sectors, Economic Planning Secretary Arsenio Balisacan said on Jan. 31.

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