Treasury bill rates continue to decline across the board; 91-day yield at 0.917%

Even as inflation likely remained elevated in January, investors flocked to Monday’s auction and snapped P24 billion in short-dated treasury bills at rates that fell across the board.

The Bureau of the Treasury sold P7 billion each in the benchmark 91-day and 182-day securities at an average of 0.917 percent and 1.21 percent, respectively.

The rates of both tenors declined from 0.969 percent in the case of the three-month debt paper and 1.323 percent that the six-month IOUs fetched last week.

The Treasury offered only P5 billion for each of the two shorter tenors but eventually doubled the amount it awarded for the noncompetitive bids, National Treasurer Rosalia de Leon said.

The annual rate for the P10 billion in 364-day bills also eased to 1.492 percent from 1.542 percent previously.

Across the three tenors, tenders totaled P103.6 billion, making the P20-billion offering five times oversubscribed.

“Rates fell in spite of higher inflation for January as the market is flushed with funds,” De Leon said.

Economists expect January’s headline inflation rate to have stayed above 3 percent mainly as food prices remained elevated.

Deutsche Bank Research chief economist Michael Spencer on Monday said the rate of increase in prices of basic commodities likely rose to 3.6 percent year-on-year in January, faster than the 22-month high of 3.5 percent in December last year, due to rising fuel prices.

“Food prices have been an important upside surprise to inflation late last year, rising 4.8 percent year-on-year in December versus 1.5 percent in September. This was partly due to vegetables prices, reflecting a series of typhoons that damaged production. This will likely be reversed over the next few months as supply recovers. But pork prices have actually been a more important driver—meat prices in the CPI (consumer price index) were up 10 percent year-on-year in December. This will take longer to reverse than the vegetables price increases,” Spencer said.

Spencer said more expensive food and the base effect from last year’s low oil price environment would jack up inflation sharply during the second quarter.

“The Philippine economy is a mostly consumption-driven economy. Social distancing practices are already weighing on growth—household consumption growth was the main source of the downside surprise in fourth-quarter GDP (gross domestic product)—and rising food and fuel prices will reduce real consumption somewhat in the first half of the year. Another reason to expect a slow recovery in 2021,” Spencer said. —Ben O. de Vera INQ