Philippine 25-Year Yield at Two-Week High on Inflation Concern

Philippine 25-year bonds fell, pushing the yield to a two-week high, on speculation a power-price increase and demands for higher pay will spur inflation.

The Trade Union Congress of the Philippines filed a petition on April 2 for an 85-peso ($2) increase in the daily minimum wage in Manila to 541 pesos. Manila Electric Co. said yesterday electricity costs in the capital and nearby areas will be raised this month. Two cuts this year in the interest rate the central bank pays on its special-deposit accounts, as well as a March 27 upgrade by Fitch Ratings, have contributed to a 1.45 percentage points drop in the 25-year bond yield in 2013.

“Some funds may have been taking profit, particularly on long-dated debt that benefited the most from the central bank’s special-deposit account rate cuts and the rating upgrade,” said Smith Chua, a fund manager at BPI Asset Management Inc. in Manila. “There’s also a wage hike petition and power rate hike.”

The yield on the 6.125 percent bonds due October 2037 advanced eight basis points, or 0.8 percentage point, to 4.13 percent as of 4:03 p.m. local time, according to Tradition Financial Services. That was the highest since March 25.

Consumer prices rose 3.2 percent in March from a year earlier, easing from a five-month high of 3.4 percent in February, official data showed April 5. The government’s inflation target is 3 percent to 5 percent in 2013.

The central bank is watchful of market developments, including Japan’s stimulus measures, and their impact on the local economy will be considered at its April 25 meeting, Governor Amando Tetangco said this week.

The peso closed little changed at 41.065 per dollar from 41.055 yesterday, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose two basis points to 4.86 percent.

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