MANILA, Philippines — National Treasurer Roberto Tan said Philippine nation’s bonds, Asia’s second-best performers in the past year, will probably advance in 2012 as the nation wins an investment-grade rating and the government borrows less.

“There’s still room for improvement in bond yields if we get a rating upgrade,” Tan said in an interview yesterday in Manila. The ratio of debt to gross domestic product, at about 50 percent, is “very modest” and the inflation outlook is “benign,” he said. Malaysia’s ratio was 58 percent, while Thailand’s was 46 percent, data compiled by Bloomberg show.

Fitch Ratings gives the Philippines a foreign-currency debt rating of BB+, the highest junk level, and said in July the government needs to raise revenue and spur economic growth for an upgrade. Peso securities returned 16 percent over the past year, second only to the 35 percent in Indonesia among 10 local currency debt indexes compiled by HSBC Holdings Plc.

“The market seems to say we deserve an investment grade,” said Theresa Marcial-Javier, senior vice president in Manila at BPI Asset Management, which oversees P670 billion “We expect inflation to be low.”

Benchmark 10-year yields reached a record low of 5.3 percent on Feb. 1, having fallen from 6.97 percent a year ago, according to data compiled by Bloomberg. The Bureau of the Treasury sold 9 billion pesos of 20-year bonds on Jan. 31 at an average yield of 5.906 percent, compared with 8.024 percent on Jan. 18, 2011 when the notes were last sold.

The government aims to cut its deficit-to-GDP ratio to 2 percent by 2013 from a target of 2.6 percent this year, said Tan. Gross borrowing this year will be lower than P700 billion from an estimated P738 billion in 2011, he said.

“Given that there’s a very liquid domestic market looking for investment outlets, given that the medium-term fiscal program has a very modest debt-to-GDP ratio, given that inflation outlook is benign in the medium term, the stars are aligned for sustained low rates,” he said.

Standard & Poor’s in December raised the outlook on the Philippines’ long-term foreign-currency rating, currently at BB or two levels below investment grade, to positive.

The Philippines sold $1.5 billion of 25-year dollar-denominated bonds on Jan. 4 to yield 5 percent, 196 basis points, or 1.96 percentage points, over benchmark US Treasuries. The yield premium investors demand to hold developing nations’ dollar bonds rather than Treasuries was 368 basis points on Jan. 31, up from 271 a year earlier, according to an index compiled by JPMorgan Chase & Co.

Five-year credit-default swap contracts for the Philippines traded at 174 basis points on Jan. 31, less than the 178 for Indonesia, according to data provider CMA which compiles prices quoted by dealers in the privately negotiated market. The markets insure debt against non-payment, and traders use them to speculate on credit quality.