Philippines - S&P's about face

S&P''s recent downgrade of the Philippines poses some questions about the rating process and the country''s debt management programme.

One of the problems with sovereign bond strategy is that it partly relies on second guessing the rating agencies. This injects a large degree of uncertainty into the process since the rating agencies are malleable to market pressure.

This was demonstrated yesterday when SP revised its outlook on the Philippines long-term BB rating to negative from stable, less than two weeks after reaffirming a stable outlook The about-face was no doubt influenced by the chronic weakness of Philippine asset markets and the peso in recent days, whereby spreads on the benchmark USD bonds have been trading wider than Argentina, implying multiple downgrades.

The formal explanation for SP's sudden change of heart is...

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