ASIA LOCAL BONDS-Philippine yields fall as c.bank may cut rates

HONG KONG, July 6 (Reuters) - Philippine bond yields fell in an active session on Monday, as investors raised their bets of a central bank rate cut this week in anticipation that inflation will slow to its lowest in two decades, traders said.

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VIEWS AND FLOWS

"The market's view that there will be another rate cut is firming up as we move closer to the meeting," a Manila-based trader said. "There are strong hints that the government will issue global bonds to finance the deficit, so that means they won't increase their local borrowing."

Government debt due for redemption this month worth 31.2 billion pesos ($648 million), which will likely be re-invested into the bond market, also helped push yields lower, traders said.

By late afternoon, the yield on the five-year bond PH5YT=RR was down 4 basis points (bps) at 6.07 percent, traders said. Volume of trade rose to 13.5 billion pesos from 2.2 billion pesos at the same point on Friday, traders said.

The central bank is seen lowering rates by 25 bps on Thursday to 4.00 percent for overnight borrowing, while inflation in June, due on Tuesday, is expected to slow to 1.6 percent, a 22-year low, a Reuters poll showed. [ID:nMAN538748]

Caution ahead of the government's auction of five-year bonds on Tuesday worth 8.5 billion pesos capped the decline in yields, traders said. The debt may yield 6.05 to 6.1 percent on Tuesday, versus 6.178 percent at the last auction on May 12, traders said.

Traders would be watching out for any statement from the government after the auction, particularly on developments from its plan to issue Samurai debt or global dollar bonds.

MALAYSIAN YIELDS LITTLE CHANGED

Malaysian bond yields were little changed, as investors await for the government's announcement of the details of a 10-year bond auction, the last for that maturity this year, traders said.

"The market is just nibbling. Nobody wants to make a big move," a Kuala Lumpur-based trader said.

The government will likely announce the size of the 10-year bond sale this week and hold the auction next week, traders said.

The five-year bond yield was flat at 3.80 percent, while there were no trades for the 10-year debt, last quoted at 4.38 percent on Friday, traders said.

(Reporting by Jun Ebias; Editing by Neil Fullick)