Philippine Bonds Drop on Concern Typhoons Will Quicken Inflation

Philippine government bonds fell, driving the three-year yield toward a two-week high, on concern inflation will accelerate after Typhoon Rammasun destroyed crops this week.

The storm was the strongest to hit the Philippine capital of Manila in eight years and the agriculture department estimated nationwide losses to farmers will total some 2.88 billion pesos ($66.2 million). That includes 55,015 metric tons of rice, a staple food item in Asia’s biggest importer of the grain after China. Another tropical storm entered the Philippines today after Rammasun exited yesterday. The weather bureau is predicting as many as 10 typhoons for this quarter.

“There are renewed inflation concerns after the recent typhoon and the approaching one,” said Dave Estacio, vice president at First Metro Investment Corp. in Manila. “The selling pressure may continue ahead of the July 31 central bank policy meeting.”

The yield on the 2.875 percent bonds due May 2017 rose three basis points, or 0.03 percentage point, to 2.63 percent, according to Tradition Financial Services prices at 4:31 p.m. in Manila. The rate increased four basis points this week.

The typhoon won’t threaten inflation targets this year and next, and Rammasun’s effects are expected to be “substantially less” than previous storms, Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters today. The three-year bond yield which rose as much as five basis points earlier today, pared its advance.

‘Chilling Effect’

The peso was little changed today and rose 0.1 percent this week to close at 43.515 per dollar in Manila, according to Tullett Prebon Plc prices. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose eight basis points today to 4.58 percent.

The peso lagged gains in other Southeast Asian currencis this month as a court ruling declaring parts of a government stimulus program unconstitutional. President Benigno Aquino said on July 15 the decision could have a “chilling effect” on the economy.

Financial markets are affected by factors including external developments, Tetangco said today. Geopolitical risks including the shooting of Malaysia Airline System Bhd Flight 17 over Ukraine added to risk aversion, First Metro’s Estacio said.

Any storm damage to crops could add pressure to the supply chain, central bank Deputy Governor Diwa Guinigundo said yesterday. Bangko Sentral ng Pilipinas raised banks’ reserve requirements in March and May, and last month increased the interest rate on special-deposit accounts.

Consumer-price increases slowed to 4.4 percent in June from 4.5 percent in May, official data show.

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