Philippine debt yields are expected to stay within a tight range of about 10-20 basis points this week with inflation worries dissipating as world oil prices have fallen below $100 per barrel, traders said.

But a weak Philippine peso, as risk aversion drives investors away from emerging markets, may keep the central bank hawkish in the near-term and push yields higher, others said.

“I cannot see any reason for rates to go up,” said a dealer from a local bank. “Except for the dollar-peso trading at a year-high, that may push the central bank to raise rates. But then again, there is so much liquidity in the system.”

Yields have not risen much after falling by more than 20 basis points earlier this month following a lower-than-expected inflation rate in August and the central bank’s comments that inflation may have peaked earlier than its forecast of October this year.

The benchmark 5-year T-bond was quoted at 6.6528 percent in the secondary market, lower than 6.8 percent in morning trades on Friday and 7.25 percent a week ago.

Most analysts expect the central bank to raise rates for the last time this year at its October policy meeting to ensure inflation stays on a decelerating path towards 2009.

On Monday, BusinessWorld newspaper quoted central bank governor Amando Tetangco as saying if the inflation outlook was getting better, there would be no urgency to tighten rates.

But central bank deputy governor Diwa Guinigundo said last week annual inflation in September may come in at 12.6-12.7 percent, higher than the 12.5 percent hit in August, mainly due to the impact of recent typhoons on food supply.

If not for the typhoons, the August inflation rate could have been the peak for this year, Guinigundo said.

The central bank’s next policy meeting is on Oct. 9.

The central bank has raised rates for a total 100 basis points in three months to August this year to rein in soaring inflation which has reached 17-year highs.

Average best bids and done deals in the secondary market*:

BEST BIDS DONE DEALS

Sept 15 Sept 8 Sept 15 Sept 8

(in percent)

three-month 6.1308 6.2750 6.0000 6.1250

six-month 6.4654 6.7154 6.0071 6.6000

one-year 6.7135 6.9462 6.6000 6.5124

two-year 6.9342 7.1269 6.8650 7.0000

three-year 6.9646 7.1656 6.3830 6.8159

four-year 7.0385 7.3442 6.9000 7.2250

five-year 7.0750 7.4019 6.6528 7.2500

seven-year 7.2038 7.8154 6.8415 7.7250

10-year 7.2558 8.0692 7.1250 8.0000

20-year 8.5154 9.1154 8.4000 9.0000

25-year 8.7596 9.6115 8.6000 8.3000

*Values based on fixing by the Philippine Dealing and Exchange Corp (PDEX) as of 11:17 a.m.

($1= 47 pesos)

Source: http://www.afxnews.com

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