Philippine 2037 Bond Yield Climbs to Two-Month High; Peso Rises

Philippine government bonds due 2037 fell, pushing the yield to a two-month high, before U.S. data that may support the case for the Federal Reserve to reduce stimulus. The peso strengthened.

The Labor Department may say today that payrolls in the world’s largest economy rose by 180,000 in August, after a gain of 162,000 in July, while the jobless rate held at 7.4 percent, according to the median estimate in a Bloomberg News survey. The Federal Open Market Committee will meet on Sept. 17-18 to discuss its debt-purchase program. The 10-year U.S. Treasury yield climbed to 3 percent for the first time in two years.

“The market will remain cautious until the Fed meeting, trading will remain thin and very focused on what’s happening externally,” said Joric Nazario, treasurer at Philippine Veterans Bank in Manila. “Flush liquidity, manageable inflation and strong growth will continue to work in the Philippines’ favor. Investors will probably resume taking notice once the Fed issue is out of the way.”

The yield on the 6.125 percent bonds due October 2037 rose two basis points, or 0.02 percentage point, to 5.52 percent, the highest since July 10, according to midday fixing prices at Philippine Dealing & Exchange Corp. The rate increased six basis points this week.

The peso gained 0.2 percent to 44.48 per dollar at the close in Manila, according to Tullett Prebon Plc. The currency rose 0.3 percent this week. One-month implied volatility, a measure of expected exchange-rate moves used to price options, added six basis points today to 6.98 percent.

‘Tool Kit’

Bangko Sentral ng Pilipinas will keep its benchmark overnight rate unchanged at 3.5 percent on Sept. 12, according to all 10 economists in a Bloomberg survey. Consumer prices rose 2.1 percent in August, the slowest pace in four years, the government said yesterday.

The central bank “has room in its policy tool kit to mitigate potential adverse effects” from the geopolitical issues in the Middle East and their impact on prices, Governor Amando Tetangco said yesterday. Bangko Sentral targets average inflation of between 3 percent and 5 percent this year and next.

“If inflation was the only factor, then BSP clearly has room for easing but there are so many concerns globally that probably merit a no-change decision next week,” Nazario said.

The Fed will probably reduce its $85 billion monthly bond purchases in its September meeting, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13.

Before it's here, it's on the Bloomberg Terminal.