Yields of short-term government IOUs fell across the board this week as the market priced in a growth-focused central bank following the release of lower-than-expected growth numbers for the first quarter.
The Bureau of the Treasury on Monday accepted bids for 91-day, six-month and one-year bills to take advantage of cheaper borrowing costs, with investors willing to swallow lower profits.
“They don’t expect the central bank would increase interest rates. That’s the thinking because of the lower GDP (gross domestic product) growth,” National Treasurer Rosalia de Leon said after the auction.
The Philippine Statistics Authority (PSA) last week reported that the domestic economy grew by just 5.7 percent, the slowest since late 2011 and weaker than all analysts’ forecasts.
Data from the Treasury showed P20 billion in bills were sold—P8 billion in 91-day securities and P6 billion each for the six-month and one-year issues.
Yields for 91-day bills fell 31.1 basis points to 1.035 percent. Tenders reached P29.26 billion. For the 182-day bills, tenders reached P16.21 billion, driving yields down 21.5 basis points to 1.48 percent. Similarly, yields for one-year bills dropped 21.8 basis points to 1.764 percent.
Apart from lowering borrowing costs for the government, which makes it cheaper to fund projects, lower treasury bill rates may also lead to cheaper loans for the public. Yields for government auctions are used as benchmarks by banks for their own loans.
At the last auction, the Treasury accepted bids for 91-day bills as rates fell, but rejected bids for six-month and one-year securities as investors asked for higher interest rates.
De Leon said the drop in yields at this week’s auction showed investors expected the Bangko Sentral ng Pilipinas (BSP) to keep its key policy rates at their current record lows for longer than expected. Last March, the BSP started tightening monetary policies through adjustments in the amount of money banks had to set aside as reserves—a move meant to mop up liquidity in the system.