Philippine Bonds, Peso Rise as Moody’s Signals Possible Upgrade

Philippine seven-year sovereign bonds had a fourth weekly gain and the peso climbed after Moody’s Investors Service placed the nation’s credit rating on review for a possible upgrade.

Representatives from Moody’s will visit the Philippines next week and may join Standard & Poor’s and Fitch Ratings in awarding the nation investment-grade status as soon as this quarter, central bank Governor Amando Tetangco said in a Bloomberg Television interview today. Deputy Governor Diwa Guinigundo said yesterday that some of the funds Bangko Sentral ng Pilipinas ordered banks to withdraw from its special-deposit accounts by the end of July may be used to purchase bonds.

“The market is focused on the influx of investments from the SDAs and from a probable rating upgrade from Moody’s,” said Bunny Bernardo-Recto, vice president at Chinatrust Philippines Commercial Bank Corp. in Manila.

The yield on the 7.75 percent bonds due February 2020 fell four basis points, or 0.04 percentage point, to 3.32 percent from a week ago, the lowest level since June 7, according to a midday fixing at Philippine Dealing & Exchange Corp. It has dropped 77 basis points in four weeks.

Philippine local-currency government notes are the best performing in Southeast Asia this month, providing a return of 2.6 percent, compared with a 3.3 percent loss in Indonesia, indexes compiled by HSBC Holdings Plc show.

Upgrade Drivers

The Philippines long-term foreign and local-currency debt are rated Ba1 by Moody’s, the highest junk level. S&P and Fitch raised the nation to investment grade in the first half. The key drivers for an upgrade would be robust economic growth, “stable and favorable” government funding conditions, improving fiscal and debt dynamics and political stability, according to a statement from Moody’s yesterday.

Bangko Sentral instructed lenders to remove at least 30 percent of funds from individually managed accounts from the SDAs by July 31, and all of such money by the end of November.

The peso rose 0.1 percent to 43.305 per dollar at the close and was up by the same magnitude for the week, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 91 basis points from July 19 to 5.91 percent and was 11 basis points lower today.

The central bank amended its 2013 inflation forecast to 3.3 percent, compared with a previous estimate of 3.1 percent, Deputy Governor Guinigundo said yesterday. Consumer prices rose 2.8 percent in June from a year earlier and 2.6 percent in May, official data show. Tetangco said yesterday that July data will probably be in the region of 2.2 percent to 3.1 percent.

“The market seems to have factored in the higher inflation expectations by the central bank,” Chinatrust’s Bernardo-Recto said.

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