HONG KONG - Philippine bond yields fell on Thursday, snapping a two-day rise, on expectations inflation data due on Friday would support views the central bank will further cut rates and boost liquidity, traders said.

Views and flows

The yield on the five-year bond, the most actively traded security, eased by 5 basis points (bps) to 6.09 percent from the previous day's peak of 6.14 percent, traders said. The yield on the seven-year bond also eased by 5 bps to 7.14 percent.

"There has been some buying interest today as the market realised that the moves in the last two sessions are overdone," a Manila-based trader said.

"There are also expectations that lower inflation will lead to more rate cuts and probably some tweaking on the reserve requirement on bank deposits to expand liquidity."

Inflation probably fell to 3.7 percent in May, the lowest since November 2007, a Reuters poll showed.

Yields rose by an average of 15 bps in the last two days as investors dumped government debt on worries about the bigger budget deficit and more bond supply, traders said.

Fears of a bigger deficit and more debt sals resurfaced after the central bank urged the state to accelerate spending to avert a recession, while a Treasury official said the agency will issue retail bonds next month.

By late afternoon, volume of trade was at 4.1 billion pesos ($86.60 million), versus 23.5 billion for the whole of Wednesday, traders said.

Indonesian yields flat

Indonesian bond yields were flat after a late rally in the previous session on expectations the central bank will further cut rates, traders said.

"Today, the market is going nowhere. Bonds are very stable," a Jakarta-based trader said.

The two-year bond yield was at 8.40/8.58 percent, while the yield on the five-year bond was at 9.30/9.43 percent by late afternoon, traders said.

The central bank on Wednesday lowered rates by 25 bps, as expected, bringing cummulative reduction to 250 bps since December.