Peso to steady; T-bonds to rise

BY KARL LESTER M. YAP, BusinessWorld Reporter The peso is likely to trade between P52.90 and P53.50 against the dollar this week, dealers said last week. "Well, the range will probably hold. The peso seems to be supported at P53.50. We will probably see some consolidation first," a currency dealer from a local bank said. Last Friday, the peso hit a one-week high against the dollar, buoyed by an unexpected budget surplus in May and a rebound in the stock market, after falling to a low of P53.48 during the week. It closed at P53.115, 0.10% higher week on week. "The week’s close at 53.115 implies a retest of the P53.20 to the P53.25 levels first in the week ahead, before it retries to break P53," said Jonathan L. Ravelas, Banco de Oro’s market strategist. "There seems to be demand coming in when the peso reaches P53 to P53.10. Companies start to buy at those levels," another dealer said. Although fears of further US interest rate hikes continue to dampen the peso, dealers said news of the country’s narrower balance of payments (BoP) deficit for May could help stabilize the peso. The central bank said the country had posted a BoP deficit of $36 million in May, lower than last year’s $277 million. The US Federal Reserve, the policy-setting body of the US, is widely expected to raise interest rates for the 17th consecutive time to 5.25% when it meets on June 28 to 29. But recent statements made by Fed Chairman Ben Bernanke had been interpreted by some to mean that the Fed might pause in its tightening cycle. "Despite the fact that the Philippines is showing improvements on the fiscal front, it is still overshadowed by the larger worry of higher US interest rates for now. Until the Fed decides at the end of the month, we still expect markets to be jittery," an analyst from a foreign bank said. Higher US interest rates make emerging market assets less alluring to risk-averse investors. In the Philippines, these may cause some funds to shift to dollar-denominated assets, putting more pressure on the peso. Yields from the government’s domestic debt, meanwhile, are still expected to rise. As of Friday, the rate of the three-year paper fetched 10.35% in the secondary market, nearly the same as the 10.375% it had fetched at last week’s auction. This week, the Bureau of the Treasury is auctioning off P3.5 billion worth of five-year bonds. Dealers said the bonds should fetch between 10.5% and 10.75%. Since last month, yields from peso bonds have been rising, some by as much as five percentage points, and suffered large sell-offs as panicky holders of unit investment trust funds -- open-ended trust products invested in bonds and equities -- rushed to redeem their holdings on interest rate fears. The state has tried to prevent yields from domestic government securities from rising by canceling and rejecting several auctions, but the continuing jitters felt by markets globally had forced it to accept higher rates. –Report from BusinessWorld