Philippine Two-Year Bonds Advance After Tetangco Signals Pause

Philippine two-year bonds rallied this week, pushing the yield down by the most since February, on speculation the central bank will delay raising borrowing costs and the nation will receive more rating upgrades.

“There’s nothing on the table right now,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a May 20 interview, signaling a pause in tightening monetary policy after two increases in banks’ reserve requirements. President Benigno Aquino said yesterday he’s optimistic either Moody’s Investors Service or Fitch Ratings will follow Standard & Poor’s and raise its assessment of the nation’s credit.

The yield on the 1.625 percent bonds due April 2016 fell 17 basis points, or 0.17 percentage point, this week to 2.39 percent in Manila, according to Tradition Financial Services. That’s the biggest decline since the period ended Feb. 28. The yield fell four basis points today.

“The rally is driven by expectations of more rating upgrades and the central bank signaling a pause from tightening,” said Malou Liwag, senior vice president at Philippine National Bank in Manila.

The monetary authority will increase its policy rate to 3.75 percent from 3.5 percent in the third quarter and then to 4 percent in the last three months of the year, according to the median estimate of economists surveyed by Bloomberg. The next BSP policy meeting will be on June 19.

S&P raised the Philippines’ long-term debt rating one level to BBB from BBB- on May 8, saying it expected reforms implemented by Aquino to last beyond the end of his term in 2016. That’s the second-lowest investment grade. Fitch and Moody’s rate the country one level above junk.

GDP Report

Gross domestic product probably increased 6.4 percent in the first quarter from a year earlier, compared with 6.5 percent in the preceding three months, according to a Bloomberg survey before data due May 29. Growth last quarter was “quite good,” Economic Planning Secretary Arsenio Balisacan said May 14, citing increased state spending, remittances and exports.

The peso rose 0.2 percent this week and was little changed today at 43.665 per dollar at the close in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped nine basis points this week to 4.45 percent. It fell eight basis points today.

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