Philippine Bonds Gain on Speculation Central Bank to Hold Rates

Philippine bonds gained, with the two-year yield falling the most in three weeks, on speculation the central bank will delay increasing interest rates until the second half of the year.

Inflation remains within target, central bank Governor Amando Tetangco said in a mobile-phone message today as data showed consumer prices rose 4.1 percent in April from a year earlier. That matched the median estimate of analysts in a Bloomberg survey and compared with a 3.9 percent increase in March. The monetary authority will hold its policy rate at 3.5 percent on May 8, according to 16 of 18 analysts surveyed by Bloomberg. Two see an increase to 3.75 percent.

“The market initially expected there will be hikes in interest rates in the first half,” said Jonathan Ravelas, the Manila-based chief market strategist BDO Unibank Inc., the nation’s largest lender by assets. “That seems to have been postponed to the second half.”

The yield on the 7 percent bonds due April 2016 fell seven basis points, or 0.07 percentage point, to 3 percent, according to noon fixing prices from the Philippine Dealing Exchange Corp. That was the biggest drop since April 14. The 10-year benchmark yield declined three basis points to 4.38 percent.

Bangko Sentral ng Pilipinas has a 2014 inflation target of 3 percent to 5 percent. The monetary authority, which raised lenders’ reserve requirements by 100 basis points at its March 27 meeting, will do the same this week, BDO Unibank’s Ravelas said. Barclays Plc is also predicting an increase in reserve ratios this week, according to a research note today by Singapore-based economist Rahul Bajoria.

The peso strengthened for a third day, advancing 0.2 percent to 44.325 per dollar in Manila, according to Tullett Prebon Plc. The currency has gained 0.65 percent this month. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined three basis points to 4.68 percent.

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