T-bill rates ease despite inflation fears

Government short-term costs fell at the Treasury’s auction Monday despite the threat of inflation—likely higher in August—that could prompt monetary authorities to be more aggressive in tightening.

The Bureau of the Treasury took advantage of the chance to lock in lower rates as banks were content with taking lower returns for securities with shorter maturities, a senior official said.

“So far, the desire to push rates up has not appeared yet,” Finance Undersecretary Gil Beltran said after Monday’s auction.

Average yields for three-month treasury bills fell to 1.244 percent from 1.373 percent during the previous auction. The government raised P8 billion from the sale of three-month securities.

Yields for one-year notes also dropped to 1.864 percent from 1.869 percent, while six-month treasuries rose to 1.65 percent from 1.513 percent. The government raised P12 billion from the sale of six-month and one-year IOUs.

Treasury bills and bonds, which have longer maturities, are used by banks as benchmarks for pricing their loans to their clients. Prices of these securities are based mainly on the risks associated with lending money to the government.

“The drop means that investors have faith in the national government as a borrower,” Beltran told journalists.

Demand was strong across the board. Bids reached P25.542 billion for 91-day, P15.6 billion for 182-day, P22.685 billion for 364-day securities.

The drop in treasury bill rates comes despite the likelihood of consumer price increases accelerating further in the coming months of the year amid strong consumer demand during the holiday season, congestion at Manila’s ports, and continued tightness in the supply of food.

Higher inflation in the past months prompted the Bangko Sentral ng Pilipinas (BSP) to raise its policy rates in July for the first time since 2011. The BSP sees inflation accelerating from 4.9 percent in July to between 4.7 and 5.5 percent in August. Paolo G. Montecillo