Debt yields fall as inflation seen moderating
By Karen Lema
Reuters
First Posted 13:30:00 08/05/2008
MANILA, Philippines -- Debt yields fell around 25 basis points in heavy trade Tuesday despite inflation at near 17-year highs as investors focused on consumer price rises moderating and weaker global oil.
Annual inflation climbed in July to 12.2 percent, above the central bank's forecast range of 11.2-12.0 percent, setting the stage for a third straight rate hike later this month.
The uptick in the inflation rate from June's level of 11.4 percent was less than the 1-2 percentage point increases seen in previous months.
Core inflation, which strips out volatile food and energy costs, was 6.3 percent from a year earlier compared with 6.6 percent in June, its first let-up in pace since November.
"If you look at the month-on-month change this would be a more modest increase in the annual inflation rate compared with the big jumps in previous months," a trader from a local bank said.
The more benign view on inflation and drop in world oil prices to a three-month low of $120.27 a barrel prompted a rally in the bond market.
Trading was concentrated in three-year and four-year debt, where yields dropped 31 basis points, and in the five-year tenure where they slid 25 basis points.
In morning trade, nearly P18 billion worth of paper changed hands, more than double the normal daily average of P7.0 billion.
"The expectation of further weakness in oil prices is keeping buying interest alive in spite of a 12.2 percent inflation rate in July," the trader said.
The central bank, which will meet on Aug. 28 to review key policy rates, said Tuesday its monetary policy will remain tight cementing expectations that it will raise rates by a quarter percentage point, the third increase in as many months.
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