Philippine Seven-Year Bonds Drop on Inflation, Rate-Rise Bets

Philippine seven-year bonds fell, pushing the benchmark yield to a six-week high, on concern quickening inflation will prompt another interest-rate increase.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said this week that inflation could exceed the top end of the monetary authority’s target range of 3 percent to 5 percent in the coming months. The government issued 140.4 billion pesos ($3.2 billion) of notes due 2024 this week to raise new funds and replace shorter-term securities in its first debt swap in three years, increasing the supply of longer-dated securities.

The yield on the seven-year bonds rose four basis points, or 0.04 percentage point, to 3.745 percent, according to afternoon closing prices from Philippine Dealing & Exchange Corp. The yield increased four basis points this week to the highest level since July 8.

“People are putting more value on shorter tenors at this time,” said Joseph Colin Rodriguez, a senior vice president at Rizal Commercial Banking Corp. in Manila. Investors are also wary that a possible increase in electricity prices will spur inflation, he said.

Consumer prices rose 4.9 percent in July from a year earlier, the most since October 2011. The central bank raised its benchmark rate by 25 basis points to 3.75 percent last month, the first increase in three years. Tetangco said the monetary authority was ready to take further steps if needed. The central bank will raise its policy rate to 4 percent or higher by the end of the year, according to 14 of 18 economists surveyed by Bloomberg.

The peso closed unchanged at 43.835 per dollar, prices from Tullett Prebon Plc show. The currency fell 0.4 percent this week. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose one basis point today and 32 basis points this week to 5.32 percent.

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