Philippine Two-Year Bonds Drop on Interest-Rate Speculation

Philippine two-year bonds fell, with the yield climbing the most in more than three weeks, on speculation the central bank will tighten monetary policy.

The yield on the 7.5 percent notes due March 2016 increased 12 basis points, or 0.12 percentage point, to 2.94 percent, according to noon fixing prices from Philippine Dealing & Exchange Corp. That was the biggest rise since March 28 and took the advance over three days to 19 basis points.

The government sold 25 billion pesos ($562 million) of two-year bonds today at an average yield of 2.727 percent, according to the Bureau of Treasury. Policy makers raised lenders’ reserve-requirement ratios effective April 4 and Deputy Governor Diwa Guinigundo told reporters in Manila today that further action may be taken if necessary, depending on data before the next rate-setting meeting on May 8.

“The central bank might reduce its accommodative stance at the upcoming meeting,” said Jan Briace Santos, a debt trader who helps manage the equivalent of $16 billion at BPI Asset Management in Manila. “There are expectations rates will rise.”

The Philippine economy can withstand higher interest rates, Guinigundo said on April 12. Bangko Sentral ng Pilipinas held its benchmark rate at 3.5 percent on March 27. Inflation figures for April are due May 6.

The sale of two-year notes lured 61.3 billion pesos of bids, more than twice the amount on offer, the Bureau of Treasury said. The government last sold debt of the same maturity in May 2007.

The peso declined 0.2 percent to 44.533 per dollar in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased four basis points to 4.97 percent.

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