Philippine Bonds Set for Best Week in 3 Months on Rate-Cut Bets

Philippine government bonds rose, with seven-year debt completing its best week in three months, on speculation the central bank will cut borrowing costs to curb gains in the nation’s currency.

Bangko Sentral ng Pilipinas, which lowered the rate it pays on $46 billion in special deposit accounts to 3 percent from more than 3.5 percent in January, cannot rule out a further cut, Governor Amando Tetangco said in a March 4 e-mail. “Any further action on the SDA and its operations will depend on data coming from the advanced economies as well as price action” in markets, he wrote. On March 3, 76.44 billion pesos ($1.9 billion) of sovereign bonds matured.

“The market is anticipating another cut in the SDA rate next week, and the rally was helped by the maturing debt,” said Dave Estacio, an assistant vice president at First Metro Investment Corp. in Manila.

The yield on the 3.875 percent peso bonds due November 2019 fell 50 basis points, or 0.50 percentage point, this week to 2.85 percent, according to Tradition Financial Services. That was the biggest weekly drop since the notes were first sold in November. The rate declined 13 basis points today to the lowest level since the sale.

The peso closed little changed this week at 40.675 per dollar from 40.688 on March 1, according to Tullett Prebon Plc. The currency rose 0.1 percent today.

Best Performer

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 Feb. 14.

Bangko Sentral will keep its benchmark overnight borrowing rate at a record low 3.5 percent, according all 10 analysts in a Bloomberg News survey before the March 14 meeting. Consumer prices rose 3.4 percent in February, a five-month high, government data showed March 5. Inflation remains manageable, Tetangco said after the report.

Bangko Sentral issued this week an order capping local banks’ non-deliverable currency forward positions at 20 percent of capital and 100 percent for foreign institutions. The move was announced in December and banks have two months to comply with the change.

The government may shun global bond sales this year as it plans to boost domestic borrowing, Treasurer Rosalia de Leon said on March 2.

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