Philippine bonds can beat Asia if war risks ebb, says Brandywine

Philippine bonds may become one of Asia’s best performers once inflation pressures ease and risks from the Iran war recede, according to Brandywine Global Investment Management.

The $63 billion asset manager already holds Philippine debt, betting that cooling inflation will give the central bank room to cut interest rates as economic growth remains weak.

“Once inflation starts to stabilize, I think this market is going to run,” Carol Lye, a Singapore-based portfolio manager at the firm, which is fully owned by Franklin Templeton, said in an interview.

Philippine bonds have been battered as the Iran conflict pushes up oil prices and imported inflation. The 10-year yield has surged more than 200 basis points this year, the most in emerging Asia, according to data compiled by Bloomberg. Ms. Lye called current yield levels “very attractive,” saying the country’s debt may outperform regional peers once geopolitical tensions ease.

The Bangko Sentral ng Pilipinas, meanwhile, hiked rates by an outsized 50 basis points in October to stem price pressures. It has been the most aggressive central bank in Southeast Asia in tightening policy since the start of the Iran war.

Ms. Lye said the BSP is doing “some of the right things” by acting aggressively to prevent the price shock from filtering through to the broader economy.

Brandywine has room to increase its holdings, though poor liquidity and the risk of yields rising further are keeping the firm from buying more for now, she said. — Bloomberg