Philippine Bonds Decline as Inflation Accelerates; Stocks Rally

Philippine bonds fell, pushing the
two-year yield to the highest level since June, after the
government reported the fastest inflation in three months.
Stocks climbed to a record.

Consumer prices rose 3 percent in January from a year
earlier, after a 2.9 percent advance in December, the National
Statics Office said in Manila today. The rate matched the median
estimate of 17 economists in a Bloomberg News survey. Bangko
Sentral ng Pilipinas, which held its benchmark overnight rate at
a record-low 3.5 percent last month, is watchful of domestic and
global demand conditions as well as asset prices, Governor
Amando Tetangco said today.

“We continue to expect inflation to average 4.1 percent in
2013, above the mid-point of the central bank’s 3 percent to 5
percent inflation target,” Prakriti Sofat, a regional economist
in Singapore at Barclays Plc, wrote in a research note today.
“Our base case remains for the BSP to raise the policy rate by
25 basis points in the fourth quarter.”

The yield on the 12.25 percent bonds due October 2014
increased 15 basis points, or 0.15 percentage point, to 3.2
percent, the highest for benchmark two-year debt since June 26,
according to midday fixing prices at Philippine Dealing
Exchange Corp.

Five-year yields rose six basis points to 3.85 percent and
the 10-year rate added two basis points to 4.21 percent.

The Philippine Stock Exchange Index advanced 0.5 percent to
6,470.49 at the close in Manila, rising for a third day.

‘Manageable Inflation’

“Inflation at 3 percent for January continues to support
our outlook for manageable inflation over the policy horizon and
that our policy stance is still appropriate,” Tetangco said
today. “That said, we remain watchful of domestic demand
conditions and developments on the global front, particularly
changes in growth expectations in the advanced economies, to see
if these could begin to put any pressure on our own domestic
inflation.”

The peso fell 0.1 percent to 40.643 per dollar at the close
in Manila, according to Tullett Prebon Plc. One-month implied
volatility, a measure of expected moves in the exchange rate
used to price options, held at 4.5 percent.

Capital inflows may lead to a “perfect storm” in the
global economy and spur emerging-market currency appreciation,
Mexico central bank Governor Agustin Carstens said in Singapore
today. The Philippines has to manage peso appreciation as
sustained currency strength affects competitiveness of exporters
and outsourcing sectors, Economic Planning Secretary Arsenio
Balisacan said on Jan. 31.

To contact the reporter on this story:
Clarissa Batino at
cbatino@bloomberg.net

To contact the editor responsible for this story:
James Regan at
jregan19@bloomberg.net

Article source: http://www.businessweek.com/news/2013-02-04/philippine-bonds-decline-as-inflation-accelerates-stocks-rally

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