HONG KONG - Philippine government yields dropped across the board in active secondary market trading on Tuesday as dismal export data fueled interest rate cut hopes.
   
Philippine government yields fell by as much as 50 basis points on 10-year and 20-year bonds, while total volume of trade rose to P7 billion ($145 million) just an hour left before trading closed at 0800 GMT, compared with P1.4 billion for all of Monday, traders said.

Exports plunged 41 percent in January from a year ago, the biggest annual contraction for any month on record, the government's statistics office said earlier on Tuesday.

"The weaker economic data supports the argument for further stimulus on both the monetary and fiscal fronts," said Joey Cuyegkeng, senior economist at ING Bank in Manila.

Cuyegkeng expects the central bank to lower its benchmark overnight borowing rate by 25 bps to 4.50 percent in the next three months. The authorities may also lower the reserve requirement on bank deposits to boost liquidity, he said.

The central bank last week cut its key overnight rates by a less-than-expected 25 basis points, pushing down the borrowing rate to 4.75 percent, the lowest in 17 years.

Most of the trades on Tuesday were five-year and seven-year Treasury bonds, the most liquid of the government securities, a trader from a privately owned local commercial bank said.

The yield on the five-year bonds fell to 6.3 percent from 6.4 percent on Monday, he said.

Some deals were also seen on short-dated Treasury bills, with banks servicing client requirements for these securities due in one year or less, traders said.
   
Power bonds

Lower interest rates and demand for corporate debt are prompting more companies to issue local currency bonds.

Power producer First Gen Corp. is planning to raise up to P5.6 billion by issuing three-year notes through its unit Unified Holdings, the company said on Tuesday. The funds would be used to pay debts due this week.

Aboitiz Power is also issuing P3 billion of three-year and five-year retail bonds, a treasury official from a Manila-based bank said.

The Securities and Exchange Commission has approved the bond sale, Aboitiz said in a statement.

"A lot  of investors are no longer keen on complex derivatives after the subprime mortgage crisis," the banker said. "They are very wary about these instruments. Now, the market is back to basics and buying government and corporate bonds."

BDO Unibank, the country's largest lender, is also in the market selling P2.5 billion of Tier 2 notes, the banker said.