Philippine Bonds Blow Away Global Peers as Inflation Slides

(Bloomberg) -- Philippine bonds were the world's best-performers in the first quarter as slowing inflation fanned speculation the central bank has room to cut interest rates.

The securities returned 11.7 percent over the three months, outperforming 34 other markets tracked by Bloomberg. Greece was second, gaining 7 percent, while the worst was Singapore, which handed investors a gain of just 0.1 percent.

The “sharp deceleration in inflation” was among the major forces that drove Philippine yields lower, said Nicholas Mapa, a senior economist at ING Groep NV in Manila. “For the rest of the year, we expect rates to be pressured lower given our dovish outlook for both the BSP and Fed,” he said, referring to bond yields.

Inflation in the Philippine slowed to 3.8 percent in February from a nine-year high of 6.7 percent in September and October as measures to relieve supply bottlenecks brought down prices of foodstuffs such as rice. The central bank last month cut its 2019 inflation forecast to 3 percent from 3.07 percent

The surprise appointment of Benjamin Diokno as Bangko Sentral ng Pilipinas governor in early March also helped bonds as it bolstered speculation the central bank will ease policy as the former budget chief is seen as favoring lower interest rates.

The Philippine 10-year bond yield ended last quarter at 5.61 percent, having slid almost 3 percentage points from a high of 8.32 percent set in October. The peso was little changed in the first quarter, appreciating 0.2 percent.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds

©2019 Bloomberg L.P.