Yields rise on deficit report

PHILIPPINE bond yields rose yesterday as the government posted a bigger budget deficit, but sentiment improved after the state said it would raise more funds abroad to plug the shortfall, traders said.

The yield on the five-year bond, the most actively traded securities, rose 2 basis points (bps) from morning levels to 6.15% after the government said that it posted a P119.7-billion budget gap in the first quarter, more than its P110-billion target.

But yields eased back to morning levels after the government said it would increase foreign borrowings and cut the amount of debt it would raise at home, traders said.

Total deals reached P29.8 billion ($614 million) by late afternoon, versus P15.5 billion at the same point on Tuesday, traders said.

"The priority right now is for the stimulus measures to move into the economy and that is being done," said Joey Cuyegkeng, an economist at ING Bank. "The market has been primed for a bigger deficit this year."

Expectations of more central bank rate cuts and a lower inflation outlook would outweigh concerns about the budget shortfall, pushing yields lower, Mr. Cuyegkeng said.

The central bank will likely cut its overnight rates by 25 to 50 bps more, while inflation will likely dip to below 5% in the next three to six months, he said.

Meanwhile, Thai bond yields fell on hopes that the central bank will ease rates to revive the economy, traders said.

The Bank of Thailand forecast the economy would shrink between 1.5 and 3.5% this year due to the political unrest at home and the global economic downturn.

Yields were 5 to 10 bps lower on average, with the five-year bond down to 2.34% from Tuesday’s close of 2.45% , traders said.

The government’s plan to cut spending and reduce the deficit for the next fiscal year also pushed yields lower, traders said. — Reuters