Philippine Debt-Yields seen steady on improving inflation view

By Karen Lema

MANILA, July 28 (Reuters) - Philippine debt yields are expected to hold ground this week with investors' nerves calmed by improving inflation outlook.

President Gloria Macapagal Arroyo is due to give her annual state of the nation address at 4 p.m. (0800 GMT) later on Monday, but dealers do not expect any new economic initiatives that could push the market in a new direction.

"It's a non-event," said one trader from a local bank.

In the secondary debt market, some profit-taking was expected after bond prices rose last week, but a recent retreat in oil prices that brightened the inflation outlook was seen keeping a lid on yields.

"We saw the market rally a bit and it was driven by the expectations on oil and expectations of an improving inflation outlook," said a debt trader from a foreign bank.

"The market is still in for some choppy waters in the next couple of months, but for now, with the outlook on oil starting to improve, I think it will lend a little bit of calmness," the trader said.

Worries over slowing demand have dragged crude prices down from their record peak above $147 a barrel hit on July 11 and as fuel prices in the Philippines are not subsidised the let-up in cost has provided longed-for relief among investors.

The central bank expects annual inflation to hit close to 12 percent this month, creeping up from a 14-year high of 11.4 percent in June and peak over 12 percent in September-October.