Philippine 10-Year Bonds Gain for Month as Yields Attract Buyers

Philippine 10-year government bonds climbed this month by the most since October on speculation yields near a 15-month high are attracting buyers amid a supply shortage of long-dated securities.

The Bureau of the Treasury last sold notes due in a decade in the third quarter of 2013 and instead mostly auctioned debt due in seven years or less. The government will offer bonds maturing in two, three and five years this quarter, Treasurer Rosalia de Leon said last month. The central bank raised banks’ reserve-requirement ratios in April.

“In the absence of supply and with yields that have risen quite substantially, we’re seeing demand for longer-term bonds among insurance companies and other end-users,” said Dave Estacio, assistant vice president at First Metro Investment Corp. in Manila. “Given the central bank’s tightening bias, there’s still not much appetite for shorter bonds.”

The yield on the 10-year benchmark bonds fell five basis points, or 0.05 percentage point, in April to 4.406 percent, snapping a five-month advance, data compiled by Bloomberg show. The yield climbed to 4.627 percent on March 24, the highest level since Dec. 4, 2012, and reached a peak of 4.475 percent this month.

The peso rose 0.5 percent this month to 44.612 per dollar in Manila, according to Tullett Prebon Plc prices. The currency declined 0.3 percent today. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 88 basis points in April to 5.04 percent.

Philippine financial markets are shut tomorrow for the Labor Day holiday.

Reserve Ratio

Bangko Sentral ng Pilipinas kept its overnight borrowing rate at a record low 3.5 percent for an 11th meeting on March 27 and raised the amount of money banks must hold in reserve to 19 percent from 18 percent effective April 4.

Policy makers won’t hesitate to implement more pre-emptive, prudential measures, BSP Governor Amando Tetangco said April 26.

“When faced with this combination of manageable inflation and prolonged, strong liquidity growth, tweaking policy rates could produce unintended consequences and only fuel financial stability pressures,” he said.

The central bank will probably increase the reserves by another one percentage point when it next meets on policy May 8, and leave borrowing costs unchanged, said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc., the nation’s largest lender.

Consumer prices climbed 3.6 percent to 4.5 percent this month, Tetangco said yesterday ahead of May 6 data.

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