Philippine Three-Year Bond Yield Rises as Inflation Accelerates

The Philippines’ three-year bond yield rose, halting a two-day fall, as the government reported inflation accelerated to a three-month high. The peso advanced.

Consumer prices advanced 2.7 percent in September from a year earlier, the most since June, and surpassing the 2.4 percent median estimate from economists surveyed by Bloomberg, the statistics office said. Inflation remains manageable over the policy horizon and monetary settings continue to be appropriate, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a mobile-phone message today.

“Some investors may be thinking that inflation has turned a corner and while it remains well within target, people will be watching it more closely,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. in Manila. “A rate hike toward the second half of next year is not out of the question.”

The yield on the 7 percent bonds due September 2016 rose 16 basis points, or 0.16 percentage point, to 2.5 percent, according to Philippine Dealing & Exchange Corp.’s average yield of done trades today. The rate fell 6 basis points this week.

The peso gained 0.1 percent to 43.05 per dollar at the close in Manila, according to Tullett Prebon Plc. It rose 0.7 percent this week. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed today at 6.27 percent.

The peso, stocks and bonds advanced yesterday after Moody’s Investors Service raised the Philippines’ credit rating to investment grade with a positive outlook.

‘Remain Watchful’

“The BSP will remain watchful of both local and global developments, including the impact of the resolution of the issues surrounding the U.S. debt ceiling on financial market volatilities in the near term and the real economy in the medium term,” Tetangco said today.

The central bank will probably keep interest rates steady this year and next, “barring any unforeseen shocks,” he said in an Oct. 2 interview. The $250 billion economy will likely expand more than 7 percent this year, Tetangco said this week. Bangko Sentral expects inflation to be within the 3 percent to 5 percent target in 2013 and 2014.

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