Philippine Peso Advances to Eight-Month High on Yield Premium

The Philippine peso rose to its highest level in almost eight months amid speculation a widening yield advantage over the U.S. will draw funds.

Ten-year U.S. yields dropped the most in a week yesterday on optimism the Federal Reserve will maintain record-low interest rates to support the economy. The monetary authority will publish the minutes of its June 17-18 meeting tomorrow. Bangko Sentral ng Pilipinas will hold a policy review on July 31, having raised the interest rate it pays on special-deposit accounts and kept its benchmark rate steady on June 19.

“Wider interest-rate differentials and expectations that the BSP is in a tightening cycle ahead of the U.S. have boosted the peso,” said Joey Cuyegkeng, an economist at ING Groep NV in Manila.

The peso climbed 0.3 percent to 43.395 per dollar in Manila, prices from Tullett Prebon Plc show. That is the strongest level since Nov. 11. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 12 basis points, or 0.12 percentage point, to 4.23 percent.

The extra yield investors demand to own Philippine 10-year-bonds over U.S. Treasuries widened 78 basis points this year to 155 today, data compiled by Bloomberg show.

The Philippine central bank continues to be “mindful of risks” to achieving the inflation target, Governor Amando Tetangco said on July 4. Inflation slowed to 4.4 percent last month from a May level of 4.5 percent that was the fastest since 2011, official data showed last week. Consumer-price gains have exceeded the benchmark interest rate of 3.5 percent since December.

The yield on the Philippines’ 4.625 percent government bonds due July 2017 rose 10 basis points to 3.18 percent, according to noon fixing prices from the Philippine Dealing & Exchange Corp.

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