Philippine Bonds Rally on Speculation of Further Monetary Easing

Philippine government bonds rose, with the four-year yield dropping to a record low, on speculation monetary conditions will be eased further after the central bank said it expects inflation to remain contained.

Price gains this year and next will be in the lower half of Bangko Sentral ng Pilipinas’s 3 percent to 5 percent target range, Governor Amando Tetangco said Feb. 26, citing the authority’s latest forecast. The central bank cut the rate it pays on $44 billion in special deposit accounts to 3 percent from more than 3.5 percent in January. There is room to further refine the SDA to keep it as a liquidity management tool and not an investment outlet, Tetangco said on Feb. 15.

“They’re comfortable with inflation and that gives them the scope to keep on easing,” said Joric Nazario, treasurer at Philippine Veterans Bank in Manila. “The sense the market is getting is that the central bank will further reduce the SDA rate, or limit access to the facility. With expectations of more funds in the system, investors are looking for outlets.”

The yield on the 6.25 percent peso bond due November 2016 fell seven basis points, or 0.07 percentage point, to 3.27 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. That’s the lowest for a four-year benchmark bond since Bloomberg started compiling the data in May 2002.

The central bank will consider more prudential measures as appropriate and “further refine our conduct of monetary operations,” Tetangco said in a mobile-phone message this week.

Liquidity, Peso

On March 3, 76.44 billion pesos ($1.9 billion) of six-year government bonds will mature, data compiled by Bloomberg show, adding liquidity into the system.

The peso fell 0.1 percent today and closed little changed this week at 40.688 per dollar from 40.685 on Feb. 22, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was unchanged at 3.9 percent.

The peso is the best-performing Asian and emerging-market currency in the past 12 months. Net inflows into the nation’s stocks and bonds reached $1.3 billion in January or almost six times the $213 million level in December, the central bank reported on Feb. 14.

February inflation quickened to 3.3 percent, according to the median estimate of economists in a Bloomberg News survey before the March 5 report. That would be a five-month high. Bangko Sentral will review monetary policy on March 14.

The central bank cut the benchmark overnight borrowing rate to a record low of 3.5 percent in October and held it at that level at its December and January meetings.

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