ASIA LOCAL BONDS- Philippine yields seen up on deficit woes

MANILA/HONG KONG, Nov 16 (Reuters) - Philippine local bond yields held steady early on Monday but were under upward pressure on concerns data due out this week will probably show the country's budget deficit kept swelling last month. The curve has already steepened last week, with longer end yields leading the rise, as investors fretted that the country's budget deficit for the whole of this year would surpass the government's target by about one-fifth. It means the government will have to sell more bonds to fund the growing deficit, blamed by many on the damage from the recent floods and typhoon in addition to the sluggish economy. BUDGET DATA EYED Manila is expected to announce budget data for October some time this week. The budget gap for the first nine months has swollen to 95 percent of the full-year goal of 250 billion peso ($5.37 billion) and the government earlier this month said the shortfall would probably exceed its 2009 deficit forecast. "There could be some selling pressure in the market once the data is out and shows that the deficit has risen further in October," a trader said. "Yields could rise by at least 5 basis points this week." The spread between one- and five-year yields widened by just more than 10 bps over the past week to around 200 bps by Friday, led by a faster rise in the five-year yield, traders said. Yields were steady in early trade on Monday, with five-year quoted at 6.10 percent. "Banks will likely unload ahead of the release of budget data," another trader said. The Philippines, one of Asia's most active borrowers in the international debt market, has been struggling to contain the budget deficit and Finance Secretary Margarito Teves said last week he hoped to sell more assets to plug the gap. Some traders now expect the 2009 deficit to hit 300 billion pesos. Aside from the budget data, traders are also watching out for a government auction on Tuesday to re-issue 6.5 billion pesos worth of 10-year bonds with a life of seven years, particularly on comments from government officials after the sale. (Reporting by Jun Ebias and Karen Lema; Editing by Chris Lewis and Yoo Choonsik) Keywords: MARKETS ASIA BONDS ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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