Benchmark T-bill rate creeps up

Government borrowing costs rose this week following the Treasury’s decision to accept higher rates for short-term bonds that were auctioned off on Monday.

This follows the central bank’s recent moves to tighten monetary settings, aimed at siphoning off excess cash from the economy and encouraging banks to raise interest rates to curb demand.

“This is expected with the SDA (special deposit account) rate hike,” National Treasurer Rosalia de Leon said Monday following the auction of P20 billion-worth of short-term reasury bills.

At the government IOU auction on Monday, rates for 91-day T-bills rose by 12.2 basis points to 1.157 percent, while six-month T-bills rose by 3.2 basis points to 1.513 percent. Yields for one-year T-bills declined 3.6 basis points to 1.718 percent.

Rates for government securities, which are the safest and one of the most liquid investment instruments available in the market, are used by banks as benchmarks for the pricing of their own loans to businesses and consumers.

Monday’s auction was the first of six that will take place in the third quarter of the year. The state expects to raise a total of P135 billion from the sale of these IOUs. She said rates would continue to rise given the recent change in the Bangko Sentral ng Pilipinas’ (BSP) policy direction towards tighter monetary settings.

Banks have been ordered to set aside more of their clients’ deposits as reserves. Rates for the central bank’s SDA accounts were also raised to encourage banks to park money with the BSP.

The Treasury’s de Leon said the government was under no pressure of accept bids higher than prevailing market rates.

“There’s a cut off for our rate tolerance,” de Leon told reporters. She said the government has the “luxury” to reject bids from banks for T-bills and their long-term counterparts, T-bonds, if they ask for unreasonably high returns.

At the end of May, the government recorded a budget surplus of P8.5 billion, relieving pressure to fund state spending by raising debt.  Last month, the Treasury considered cutting its borrowing program for the second half of the year as government collections rose.