Rates of gov’t securities seen to ease further in ’13

After hitting record lows last year, interest rates on government securities may slow down further in 2013 as rising remittances and foreign portfolio investments boost demand for the virtually risk-free debt notes.

According to First Metro Investments Corp. (FMIC), inflation will likely stay modest, subduing the rise of interest rates on treasury bills and bonds.

“Government bond yields will continue to ease, albeit at a slower pace. Also, since short-term T-bills are already very low, action will likely occur in the far end of the curve,” FMIC president Roberto Juanchito Dispo said, citing the company’s 2013 outlook that appeared in the latest issue of The Market Call.

In 2012, interest rates on government securities fell to record levels, with T-bill rates dropping to less than one percent on account of strong demand for the securities.

FMIC, which jointly publishes The Market Call with University of Asia and the Pacific, said demand for the instruments would further rise this year because of the growth in remittances. This, in turn, will encourage more people to engage in portfolio investments.

The Bangko Sentral ng Pilipinas expects remittances to grow by at least 5 percent in 2013 from the estimated $21 billion of last year.

FMIC said foreign portfolio investments would rise given the favorable outlook on the local economy. Market players expect the Philippines to finally get an investment grade this year due to sustained economic growth, declining debt burden of the government and greater stability of the banking sector.

Also, lower supply of debt notes is seen to pull down interest rates on government securities.

FMIC said the government’s declining budget deficit would result in lower volumes of securities to be issued by the Bureau of the Treasury.

“We see a decline in yields in the first quarter, with little recovery in the second and third quarters, and again a downward slide in the fourth quarter,” Dispo said.

During the last auction for T-bills held on Jan. 7, the 91-day debt paper fetched a mere 0.05 percent from the 0.198 percent recorded in December. The 182-day bills also fell, fetching a rate of 0.3 percent from 0.52 percent the previous month.