T-bill yields fall across the board

The government’s short-term borrowing costs dipped for the second consecutive month, Treasury data showed Monday, reflecting a consensus that the US Federal Reserve will delay its rate increase to December this year.

Local banks earlier projected a September rate adjustment by the US Fed—a move that would drive up the cost of money globally—but recent developments have led to a change of heart.

“Some people have the view that the Fed would delay. Most of them have the opinion that it will be later than September,” National Treasurer Roberto Tan told reporters.

His comments followed the treasury bureau’s successful auction of P20 billion worth of 91-, 182- and 346-day bills Monday.

Yields fell across the board to below 2 percent.

The biggest decline was for the six-month IOUs, falling 65.7 basis points to 1.526 percent.

Banks’ bids were higher than what were offered for all tenors. Demand was highest for six-month bills, tenders for which reached P25.91 billion or more than four times higher than the P6 billion available.

Treasury bills and the longer-term treasury bonds issued by the government are the most abundant securities available to banks and investors. As such, treasury bill and bond yields are used as benchmarks by banks for the prices of loans extended to businesses and households.

The change in investors’ view over the US Fed’s much-awaited rate increase followed volatile market conditions as a result of China’s recent move to devalue its currency and a US jobs report late last week that showed a slower-than-expected improvement in the American labor market.

US Fed officials consider the US labor market as one of the main indicators that will determine the timing of the rate adjustment. Interest rates set by the US Fed have been at record lows since 2008 to help stimulate the American economy.

Record-low inflation in August also helped bring short-term rates down, Tan said. In August, consumer prices were on average 0.6 percent higher than year-ago levels, due mainly to lower fuel and power costs, as well as the relatively stable domestic supply of food.

The decline in treasury bill rates comes ahead of the government’s planned closing date for a domestic debt swap that can reach as much as P300 billion.

Tenders for the debt swap, which aims to replace existing long-term IOUs with more liquid securities that are easier to buy and sell, reached P388 billion as of last Friday, Tan said. Final details of the transaction would be announced Tuesday.