Philippine Three-Year Bonds Advance on SDA Rate-Cut Speculation

Philippine bonds rose, pushing the three-year yield to a two-week low, on speculation the central bank will reduce the interest rate on special-deposit accounts. The peso strengthened.

Bangko Sentral ng Pilipinas, which will review policy on April 25, is monitoring capital flows after the Philippines achieved an investment-grade ranking from Fitch Ratings last month, Governor Amando Tetangco said April 5. The monetary authority is keeping the option of further trimming the 2.5 percent it pays on 1.9 trillion pesos ($46 billion) in the SDAs after two reductions this year, he said this month.

“The market consensus is that the BSP has room to reduce the SDA rate and will continue to cut,” said Raul Tan, head of the balance-sheet segment at Rizal Commercial Banking Corp.’s Treasury Group in Manila. “Whether it will happen next week or in future meetings remains to be seen.”

The yield on the 7.5 percent bonds due March 2016 fell 11 basis points, or 0.11 percentage point, to 2.79 percent, according to midday fixing prices at Philippine Dealing & Exchange Corp. That was the lowest level since April 1.

The peso rose 0.4 percent to 41.235 per dollar at the close in Manila, according to Tullett Prebon Plc. The currency fell to 41.413 yesterday, the weakest level since October. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose one basis point to 4.73 percent.

Rule Amendments

Fitch raised the rating on the nation’s long-term foreign currency-denominated debt one level to BBB- from BB+ on March 27. The next day, Tetangco said the central bank is preparing to announce a new set of “liberalization measures” to encourage outflows as early as April.

Bangko Sentral reduced the rate on its special accounts by about half a percentage point each in January and March. Inflation slowed to 3.2 percent last month from 3.4 percent in February that was the highest since September.

The monetary authority will announce the latest changes to its foreign-currency rules tomorrow, according to an e-mail from the central bank ahead of the press briefing at 2:30 p.m. in Manila. The measures will make it easier for financial institutions to access foreign currency and encourage outflows, Tetangco said in a March 28 interview.

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