Philippine local bond yields slipped on Friday as dealers continued to price in expectation of a prolonged rate pause by the central bank and ample cash conditions in the banking system. Yields across the curve fell by 2-3 basis points with short-bonds rallying much more than longer-dated ones.
Central bank Governor Amando Tetangco said on Wednesday the monetary authority had enough leeway to continue its easy monetary policy and there was no urgency to implement an exit strategy despite a possible uptick in inflation. Since Tetangco made those comments, yields have been under pressure.
On Friday, five-year yields fell to 5.97 percent from below 6 percent at Thursday's close and 7-year bond yields dipped to 6.97 percent from 6.98 percent. Central bank data shows funds parked in the central bank special deposit scheme, an indicator of excess liquidity, was a 610 billion pesos ($13 billion) in the week ended October 30 and near an all time high of 700 billion pesos in 2008, traders said.
The bank has kept its key overnight borrowing rate at a record low of 4.0 percent since July and analysts do not expect a hike until at least the second quarter of 2010, when price pressures are likely to increase as growth picks up. Annual inflation jumped to 1.6 percent in October from 0.7 percent in September, the highest since May, but remained within market and central bank estimates. Officials largely attributed the jump to higher food prices following typhoons in September and October.
The Philippine yield curve has steepened over the past month with longer-dated yields falling by 10 basis points while shorter-dated yields falling between 12-15 basis points. October's data showed Manila's fiscal deficit was at 266 billion pesos, exceeding the full-year target of 250 billion pesos.