Philippine Bond Yield Falls to Record on Rating Upgrade Optimism

The yield on Philippine bonds due 2031 dropped to a record on speculation international investors are stepping up purchases of the nation’s debt on optimism credit ratings will be upgraded. The peso was little changed.

The Southeast Asian country will probably be awarded an investment-grade rating in the first half of this year, central bank Governor Amando Tetangco told Bloomberg Television on Jan. 25. The country’s international reserves rose 2.3 percent to a record $85.8 billion in January, the monetary authority said today.

“We still see flows from developed markets to emerging markets like the Philippines,” said Lito Mercado, head of trading at Rizal Commercial Banking in Manila.“The upgrade story is gaining traction.”

The yield on the 8 percent bonds due July 2031 fell nine basis points, or 0.09 percentage point, to 4.94 percent as of 4:47 p.m. in Manila. That is the lowest level since the notes were issued in July 2011, according to prices from Tradition Financial Services.

The Philippines has the highest junk rating at Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. S&P, which raised the outlook on the country’s debt to positive in December, said an upgrade is possible this year, citing improved governance and public finances.

The peso was at 40.638 per dollar in Manila, compared with 40.655 yesterday, according to prices from Tullett Prebon Plc. The currency reached 40.550 on Jan. 14, the strongest since March 2008, and has gained 0.9 percent this year. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed at 4.25 percent.

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