Philippine 25-Year Bond Yield at Record Low on Rating Optimism

Philippine bonds climbed, pushing the 25-year yield to a record low, on speculation the country will win further credit-rating upgrades. The peso declined.

Demand for bonds is strengthening after the central bank reduced the rate it pays on special-deposit accounts to 2.5 percent from 3 percent on March 14, the second decrease this year. The Southeast Asian nation won its first investment-grade rating on March 27 from Fitch Ratings and Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd., says Standard & Poor’s and Moody’s Investors Service may follow suit as the peso appreciates and the economic outlook improves.

“Philippine bonds are in a very good place,” said Varathan, who is based in Singapore. “Global investors will find the Philippines alluring, given the rating story, while idle funds from a cut in special-deposit accounts will continue to go into bonds.”

The yield on the government’s 6.125 percent notes due 2037 declined two basis points, or 0.02 percentage point, to 3.71 percent as of 4:23 p.m. in Manila, according to Tradition Financial Services. It touched 3.70 percent, the lowest level for a benchmark 25-year security in data compiled by Bloomberg since 2000. U.S. Treasuries due May 2037 yield 2.86 percent.

The Philippine economy expanded 6.8 percent in the fourth quarter, official data show. President Benigno Aquino is seeking more than $17 billion of infrastructure investment to spur growth to as much as 7 percent this year. The government, which reported a budget deficit of 19.5 billion pesos ($477 million) for January, will release details of its income and spending in February tomorrow.

The peso fell 0.1 percent to 40.873 per dollar, Tullett Prebon Plc prices showed. That pared its gain in the past year to 4.4 percent. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell seven basis points to 3.84 percent.

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