Philippine Peso, Bonds Rally on S&P Investment-Grade Rating

The Philippine peso posted its biggest gain in almost two weeks and government bond yields fell after the nation won an investment-grade rating from Standard & Poor’s.

The rating on the nation’s long-term foreign currency-denominated debt was raised one level to BBB- from BB+, S&P said in a statement today, citing an improving external profile, strengthening public finances and cooling inflation. The outlook on the ranking is stable. Fitch Ratings Ltd. raised the Philippines to investment grade on March 27, while the country has the highest junk assessment at Moody’s Investors Service.

“The peso and bonds rallied after the S&P upgrade, reinforcing the bullish sentiment of investors,” said Rafael Algarra, executive vice president at Security Bank Corp. in Manila. “After the initial reaction, there may be some profit taking in the coming days. It will take a while before funds focused on investment grade assets can process approvals.”

The peso gained 0.3 percent to 41.055 per dollar at the close in Manila, after falling as much as 0.2 percent earlier, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined five basis points to 4.63 percent.

The yield on the 4 percent bonds due December 2022 fell 15 basis points, or 0.15 percentage point, to 2.85 percent, according to Tradition Financial Services.

The upgrade could also boost the Philippine equities market, said Alex Pomento, a Manila-based strategist at Macquarie Group Ltd. The benchmark stock index rose 0.3 percent today, closing before the S&P announcement.

‘Remain Vigilant’

Bangko Sentral ng Pilipinas will “remain vigilant against risks associated with greater inflows,” Governor Amando Tetangco said in a statement. The upgrade will cut the nation’s borrowing costs, presidential spokesman Edwin Lacierda said.

The $225 billion economy expanded 6.6 percent in 2012, the fastest pace in Asia after China. Growth may have exceeded 6 percent in the first quarter, Economic Planning Secretary Arsenio Balisacan said this week. Consumer-price gains probably slowed to a range of 2.2 percent to 3.1 percent in April from

3.2 percent in March, Tetangco said on April 29. The government will report last month’s inflation data on May 7 and first-quarter gross domestic product on May 30.