Credit default swap prices on the Philippines sovereign continued to drop last week, as the country's new government showed signs of being committed to tackling economic problems. One-year credit default swaps on sovereign Philippines traded a few times last week at around 200 basis points, said a trader in Tokyo. Mid-January, before former President Joseph Estrada stepped down, one-year sovereign credit default swaps were trading some 100bps higher, he said.
Five-year protection on sovereign Philippines has also come in substantially, the trader said. Just before Estrada stepped down it was trading in a range as high as 600bps-700bps, but had dropped to a mid-level quote of 530bps by Tuesday, he said. Pricing on sovereign credit default swaps is extremely volatile, he said, noting that on five-year credit default swaps pricing tends to jump by at least 4bps per day.
Craig Chan, Asian strategist at ING Barings in Hong Kong, said that while the future direction of the Philippines' economy is hard to predict so soon after Estrada's resignation, preliminary signs look fairly encouraging. The economy seems to be recovering, largely due to an avowed commitment by the country's new government to make it a top priority, he said. The new government appears to be reigning in government spending, and short-term interest rates are falling. Under Estrada's last year of rule, growth stood at 2.1%. ING Barings now predicts it will reach 3% in 2001.
