Philippine 2037 Bonds Decline After U.S. Yields Rise; Peso Gains

Philippine bonds due 2037 fell for the first time a week as signs the U.S. economy is strengthening fueled bets the Federal Reserve will scale back stimulus that has spurred inflows into emerging markets. The peso gained.

The yield on 10-year Treasuries reached the highest level in almost seven weeks yesterday, following a report that showed retail sales in the world’s largest economy unexpectedly increased in April. The Fed is buying $85 billion of debt each month to rein in funding costs and support the economy. Domestic financial markets were closed yesterday due to elections.

“The rise in bond yields has less to do with local factors than with global ones, as U.S. Treasury yields continue to climb,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “Other sovereign yields are also climbing across the board. I don’t see the result of elections swinging the markets in a big way.”

The yield on the government’s 6.125 percent notes due October 2037 rose one basis point, or 0.01 percentage point, to 3.93 percent in Manila from May 10 after reaching 3.95 percent earlier, according to Tradition Financial Services. It fell eight basis points in the previous three sessions. Ten-year U.S. Treasury yields rose to 1.94 percent yesterday before declining to 1.9 percent today.

Nine Senate candidates backed by President Benigno Aquino are leading among the 12 seats available with about 30 percent of precincts reporting, according to an unofficial count posted on the Commission on Elections’ website. Since four of the 12 senators whose terms expire in 2016 ran with Aquino’s coalition when he took power, an election victory for nine more allies would give him an effective majority in the upper house.

Borrowing Plans

The Philippines is considering an overseas debt offering next year after deciding to avoid the global bond market in 2013, Treasurer Rosalia de Leon said today, responding to questions in a mobile-phone message. Any international borrowing would be “minimal” and the government has a bias toward raising funds locally, she said.

The peso rose 0.1 percent to 41.09 per dollar, Tullett Prebon Plc prices showed, reversing an earlier loss of as much as 0.2 percent. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell one basis point to 4.28 percent.

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