Philippine Debt-Yields jump after inflation hits 14-yr high

MANILA, July 4 (Reuters) - Philippine debt yields climbed
about 10 basis points on average on Friday, with maturities
between two and seven years spiking by as much as 25 basis
points, after inflation soared to a 14-year high in June.

Yields were likely to inch up further in cautious trade
ahead of the central bank's policy meeting on July 17, when
markets expect a rate rise of up to 50 basis points, traders
said.

"Most of the dealers are already thinking another 25 to 50
basis points hike is just appropriate for double-digit
inflation," a dealer from a big local bank said. "It may
already be a token move. It has to be done."

The statistics office reported that annual inflation in
June hit 11.4 percent, its highest since May 1994 and the first
double-digit reading since early 1999. The number exceeded both
the central bank's and market forecasts.

The central bank had estimated the figure at 10.4-11.2
percent and a consensus forecast in a Reuters poll was for a
10.2 percent reading.

After the release of the data, the yield of the benchmark
five-year paper <PH5YT=RR> broke past its technical resistance
at 8.75 percent and traded at 8.825 percent, a two-year high.

"The market will not correct until it sees what it is
expecting to happen come true. Until then, the market will just
be coasting along, slowly rising," a dealer from a foreign bank
said.

Earlier this week, most of 12 economists polled by Reuters
predicted the benchmark overnight borrowing rate will rise by
50 basis points by year-end to 5.75 percent with five pegging
the rate at 6.0 percent.

Dealers said there was buying interest in debt of up to
three-year maturity <PH3YT=RR> but interest in longer-term
government securities was waning due to inflation worries,
resulting in a steepening of the yield curve.

"In the past three months since April, banks' expectations
and outlook on inflation have been revised several times, so
the banks are lightening up their positions," one trader said.
The central bank raised interest rates by 25 basis points at a
meeting in June, the first rise in almost three years.

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

BEST BIDS DONE DEALS

July 4 July 3 July 4 July
3

(in percent)
three-month <PH3MT=RR> 6.1731 5.6385 6.0000
5.5000
six-month <PH6MT=RR> 6.9077 6.1250 6.7500
6.0000
one-year <PH1YT=RR> 7.3788 7.0981 6.6518
6.5990
two-year <PH2YT=RR> 8.4154 8.4404 8.2500
8.1250
three-year <PH3YT=RR> 8.7615 8.5654 8.2890
8.1022
four-year <PH4YT=RR> 9.0346 8.8481 8.9000
8.3247
five-year <PH5YT=RR> 9.2673 9.1077 8.8164
8.6966
seven-year <PH7YT=RR> 9.5019 9.3462 9.3750
9.2500
10-year <PH10YT=RR> 9.8877 9.5981 9.7500
9.5000
20-year <PH20YT=RR> 10.7000 10.7181 10.5000
10.5000
25-year <PH25YT=RR> 10.7423 10.7346 10.5000 10.5000

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

($1=45.7 Philippine Peso)
(Reporting by Rosemarie Francisco; Editing by Tomasz Janowski)