Philippine Bond Slump to Extend on Inflation Worry, Analysts Say

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Or sign-in if you have an account.20nk[44nsynpnslnl[w2y)[t_media_dl_1.png Bloomberg(Bloomberg) — Philippine sovereign debt faces prolonged pressure, analysts say, as sticky inflation keeps the central bank hawkish, extending a slump that made the bonds Southeast Asia’s worst performer last month.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountUnion Bank of the Philippines expects Philippine 10-year bond yields to rise to 7.60%-7.80% in the near term, while Aberdeen Investments sees them staying elevated and within the range of 7.20%-7.60%. Those on benchmark 10-year notes are currently hovering around 7.25%.The weak outlook marks a deepening of July’s selloff, when returns on Philippine bonds fell 1.74%, driven by inflation pressures and rate-hike bets. With global energy prices volatile and inflation well above target, analysts expect Philippine debt to remain vulnerable to further downside.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“We believe Philippine bond yields could move higher in the near term,” said Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines. “The main reason is that markets continue to price in a 25-basis-point Bangko Sentral ng Pilipinas rate hike at the August 27 Monetary Board meeting amid renewed inflation pressures.”That forecast comes on the heels of a sharp selloff, in which the Philippine 10-year yield climbed 52 basis points in July, far outpacing most Asian peers. Data on Wednesday showed Philippine inflation eased for a third month in July to 6.2% but remained well above the BSP’s full-year target of 3%.The central bank said it’s prepared to take further monetary action as needed to ensure that inflation returns close to target. It has already raised the benchmark interest rate by 50 basis points this year.Inflation staying elevated is still the dominant concern for fixed-income markets, Asuncion said. “Elevated US Treasury yields, oil price volatility and geopolitical uncertainties have also created a less favorable backdrop for emerging market bonds, including the Philippines.”Despite those macro risks, some analysts see a floor for the selloff as investors move to lock in higher yields.Strong dip-buying demand should emerge if yields rise above 7.50%, said Winson Phoon, head of fixed‑income research at Maybank Securities in Singapore. “A 10-year yield above 7.50% would make the curve sufficiently steep to provide a decent buffer against further policy tightening, and this level historically attracted dip-buying interest.”Debt issuance dynamics could counter that dip-buying demand, according to some analysts. Shivank Sehgal, investment analyst at Aberdeen Investments, sees back-loaded debt issuance and light bond maturities during this period to add to headwinds for the market.“Elevated oil prices, uncertainty surrounding the US-Iran conflict and material second-round inflation effects should keep inflation risks prominent and require further BSP tightening,” he said.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.