Philippine Bonds Advance as Peso Closes at Eight-Month High

Philippine bonds gained for a second day on speculation demand for local debt will increase as the nation’s strengthening external finances propelled the peso to an eight-month high.

The country’s balance of payments position will improve for the rest of the year, Bangko Sentral ng Pilipinas Governor Amando Tetangco said yesterday. The central bank still expects inflation this year and next to stay within its target even after Typhoon Rammasun last week destroyed 8.95 billion pesos ($207 million) of farm output. Tetangco said the BSP will consider consumer prices, geopolitical developments and economic growth at its July 31 policy meeting.

The yield on the 7 percent notes due April 2016 fell 20 basis points, or 0.20 percentage point, to 2.75 percent, according to Philippine Dealing & Exchange Corp.’s midday fixing. The peso rose 0.5 percent to 43.225 per dollar in Manila, the highest closing level since Nov. 8, Tullett Prebon Plc prices show.

“Flows out of Europe could be going to the best of the rest, which is Asia’s emerging markets,” said Alan Cayetano, head of foreign-exchange trading at Bank of the Philippine Islands in Manila. “Investor perception that Philippine fundamentals are stable boosts the appeal of local assets. Inflation, though elevated, is still manageable by most standards and encourages investments in bonds.”

Policy Outlook

Inflation slowed to 4.4 percent in June from 4.5 percent in May, the fastest pace since November 2011. The central bank will increase its overnight borrowing rate to 3.75 percent from a record low 3.5 percent next week, according to four of seven economists in a Bloomberg News survey. Three predict no change.

The central bank raised banks’ reserve requirements in March and May and last month raised the rate in special deposit accounts to 2.25 percent from 2 percent.

Global price pressures are “much less compared with the previous month,” BSP Deputy Governor Diwa Guinigundo told reporters today. Money-supply growth will continue to cool after the central bank’s previous actions, he said.

One-month implied volatility in the peso, a measure of expected moves in the exchange rate used to price options, rose 13 basis points to 4.36 percent.

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