Treasury wants lower yields for bills, bonds

Market players, take notice: The government wants lower rates.

This was National Treasurer Rosalia de Leon’s signal to banks planning on bidding for government securities at the auctions of treasury bills and bonds.

“Yields should be lower,” De Leon told reporters Friday, a day after Standard & Poor’s announced its upgrade for the Philippines’ sovereign debt paper to “BBB,” the highest rating ever obtained by the country.

The higher rating indicated the government’s improved ability to repay obligations, which should translate to lower interest rates because holding Philippine debt would be considered safer.

“There’s room for us to be more selective of bids,” De Leon stressed.

At its latest auction where P20 billion in short-term treasury bills were put up for sale, the Bureau of the Treasury rejected all bids for 6-month and one-year paper as banks sought higher returns. All bids for 90-day bills, the IOUs with the shortest tenor, were accepted because banks accepted lower yields.

De Leon said there was no incentive for the government to revise its borrowing program for the year, despite the credit-rating upgrade. She said investors have already priced Philippine debt better than similarly rated peers like Indonesia.

This year, the Philippines plans to borrow 85 percent of its financing needs from the domestic market that is currently flush with cash. The remaining 15 percent would come from foreign sources such as the government’s dollar bond sale last January and concessional loans from multilateral banks.

With the upgrade, demand for Philippine debt may get stronger given the current preference of investors for safer bets.

De Leon conceded that rates could still rise in the coming months as a result of changing monetary policy settings in advanced economies, particularly the United States. “Rates may continue to rise, but banks shouldn’t ask for more than the yields in the secondary market,” De Leon said.

She said recent fiscal reforms such as greater transparency at the Bureau of Customs as well as the establishment of the Treasury Single Account (TSA) have given the government a comfortable cash buffer.

Customs collections in the first quarter rose by 26 percent, outpacing the growth in all state revenues, which was up 14 percent in the same period. Paolo G. Montecillo