Bad news on the budget deficit has trickled through in recent weeks and there is scepticism about the Philippine government’s ability to limit the shortfall to its new (upwardly-revised) target for 2010. Nevertheless, the slippage is small relative to the size of the economy and we believe that the Aquino administration is serious about improving tax collection. Financing problems remain unlikely. Government bond yields should stay close to current levels in 2010 before moving higher next year.