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Philipine 3 year Bond is The Best Choice
"Two- and three-year bonds would be a safe choice in case the central bank no longer cuts rates and the market remains apprehensive on supply," Singapore-based Belhimeur said in an interview. "Treasury bill rates are too low now and won't drop any further if the central bank doesn't cut."
Investors should buy Philippine government debt maturing in two and three years as concerns supply will increase and rate cuts will end reduce demand for longer-maturity notes, Standard Chartered Plc said. Yields on 91-day bills at an 18-month low will deter buyers at the short end of the curve, said Khalil Belhimeur, a fixed- income strategist at the British lender that earns most of its profit in Asia. The government's 10-year borrowing cost climbed to the highest level this year on estimates for a record budget deficit and as the central bank said it may review its policy of lowering rates. The yield on the benchmark three-year note climbed to 5.67 percent on Aug. 3, a two-week high, and was at 5.54 percent today, according to Philippine Dealing & Exchange Corp. in Manila. The 91-day bill yield, which banks use to price loans, fell on July 27 to 3.85 percent, the least since January 2008. It has dropped 2.27 percentage points this year, more than the 2 percentage point reduction in the overnight rate by Bangko Sentral ng Pilipinas. Looking for Value The difference between three-year bond yields and the central bank's benchmark overnight borrowing rate of 4 percent is about 1.54 percentage points, 44 basis points higher than the average spread since the start of the central bank's rate- reduction cycle in mid-December, Belhimeur said. The gap will narrow as the three-year yields drop, he forecast, without giving details. "People will start looking for more value and start shifting to two- and three-years with or without a BSP cut because liquidity is still flush," according to Belhimeur. Placements with the central bank's overnight and special accounts, a gauge of surplus cash, totaled 844 billion pesos ($17.7 billion) as of July 10, according to the latest available data. A sale of five-year debt this week failed, as did an auction of 10-year bonds on July 21, because the government didn't want to offer yields that investors demanded. The Bureau of the Treasury will auction 8.5 billion pesos of treasury bills on Aug. 10 as the Southeast Asian nation funds its budget deficit, which is estimated at 250 billion pesos this year. Signs of economic recovery may prompt policy makers to review their accommodative stance, central bank Deputy Governor Diwa Guinigundo said on Aug. 4, echoing similar comments by Assistant Governor Cyd Tuano-Amador on July 22, when she signaled a pause after six rate cuts. Philippine bonds have returned 5.9 percent this year, making them the second-best performers among the 10 regional local-currency debt markets in Asia, according to an index compiled by HSBC Holdings Plc.read source article