Philippine 25-Year Bonds Rise as Tetangco Signals More SDA Cuts

Philippine 25-year bonds rose,
pushing the yield to the lowest level in more than a decade,
after the central bank signaled it may further cut interest
on special-deposit accounts.

Bangko Sentral ng Pilipinas hasn’t maximized the use of the
SDA rate, Governor Amando Tetangco said in a Bloomberg
Television interview today. The monetary authority trimmed the
deposit rate to 2.5 percent from 3 percent yesterday, the second
reduction of 2013. It expects inflation to average 3.3 percent
this year and next, compared with a 3 percent to 5 percent
target range, Assistant Governor Cyd Amador said yesterday.

“When the governor said he’s not maxed out on the SDA yet,
he is consistent with earlier pronouncements that inflation is
benign and gives them room to cut borrowing costs,” said Ricky Cebrero, head of treasury at Philippine National Bank in Manila.
“Some funds in SDAs will probably go to stocks or government
, most likely in longer-dated debt.”

The yield on the 6.125 percent notes due October 2037 fell
15 basis points, or 0.15 percentage point, to 4.67 percent,
according to midday fixing prices at Philippine Dealing
Exchange Corp. The rate fell 14 basis points this week and is at
the lowest for a benchmark 25-year bond since November 2000 when
Bloomberg started compiling the data.

Peso Gains

The central bank also set interest rates on all maturities
of its reverse-repurchase facility at 3.5 percent yesterday, the
same as the benchmark overnight borrowing rate.

The peso closed little changed at 40.607 per dollar and
rose 0.2 percent this week, according to Tullett Prebon Plc.
It’s the best performing emerging-market currency in the last 12
months with a gain of 6 percent.

One-month implied volatility, a measure of expected moves
in the exchange rate used to price options, was little changed
at 3.61 percent.

The two SDA cuts this year will give the monetary authority
about 20 billion pesos ($492 million) in annual savings, Amador

“Savings on interest expenses are not the driver of our
policy moves, although this may be a welcome byproduct,”
Tetangco said today. Bangko Sentral intervenes in the foreign-
currency market “every now and then” to curb excessive
volatility, he said.

To contact the reporter on this story:
Clarissa Batino at

To contact the editor responsible for this story:
James Regan at

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