Philippine 14-Year Bond Yield Drops to One-Year Low; Peso Gains

Philippine government bonds advanced, pushing the 14-year yield to a one-year low, as a drop in returns on central bank accounts and the nation’s economic outlook lured buyers. The peso strengthened.

The yield on the notes due 2027 fell 75 basis points since Jan. 23, the day before the monetary authority cut the interest rate on almost 1.7 trillion pesos ($42 billion) of its special-deposit accounts. The economy expanded 6.8 percent last quarter, beating analysts’ estimates, while inflation was 3 percent in January, the lower-end of the central bank’s 3 percent to 5 percent target, official data show. The peso gained 1.1 percent this year after rallying 6.8 percent in 2012.

“Funds with SDA maturities who opted not to rollover are starting to see value in the bond market and equities,” said Ryanna Berza-Talan, a Manila-based fund manager at BDO Unibank Inc.’s trust group that oversees about $16 billion of assets. “We’re still looking at stable inflation, an appreciating peso, and a growing economy.”

The yield on the 5.375 percent bonds due March 2027 dropped three basis points, or 0.03 percentage point, to 4.3 percent as of 4:17 p.m. in Manila, according to prices from Tradition Financial Services. That’s the lowest level since the notes were sold in February 2012. The rate fell 20 basis points this week.

The Philippines can win an investment grade credit rating in 2013 as the nation sustains its economic growth, robust external payments position and stronger financial system, central bank Deputy Governor Diwa Guinigundo said this week. The country is rated the highest junk level by all three major ratings companies. Standard & Poor’s raised the nation’s credit outlook to positive in December and said an upgrade is possible in 2013 on improved governance and public finances.

The peso rose 0.1 percent today and 0.2 percent this week to 40.602 per dollar at the close in Manila, data from Tullett Prebon Plc show. One-month implied volatility, a measure of expected moves in exchange rates used to price options, was steady at 4.2 percent.

Overseas remittances increased 9.7 percent in December from a year earlier, the fastest pace in 13 months, to a record $1.98 billion, the central bank reported today. Money sent home by Filipinos abroad rose 6.3 percent in 2012 to $21.4 billion, exceeding the monetary authority’s 5 percent forecast.

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