Philippine Peso Declines as Yield Advantage Narrows to Record

The Philippine peso fell toward a two-week low as the yield premium on the nation’s bonds dropped to a record and on concern declines in the yen will hurt export-driven Asian economies.

The Philippine currency weakened after 10-year U.S. Treasury yields rose to their highest level in two months, narrowing the rate advantage on peso-denominated bonds to 112 basis points, the least in data compiled by Bloomberg going back to 1998. The yen reached 102.62 per dollar today, the lowest level since October 2008, prompting a drop of as much as 0.8 percent in South Korea’s won.

“The Japanese yen’s weakness will affect other Asian economies, where the Philippines also trades,” said Joey Cuyegkeng, an economist in Manila at ING Groep NV. “We’ve got rising U.S. interest rates. The gains in Philippine financial assets are not as attractive.”

The peso weakened 0.3 percent to 41.205 per dollar in Manila, according to prices from Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 18 basis points, or 0.18 percentage point, to 4.3 percent.

The yield on the 13 percent government bonds due February 2023 fell one basis point to 2.93 percent, according to prices compiled by Bloomberg.

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