T-bill rates fall across the board; 91-day yield at 1.8%

MANILA, Philippines—Treasury bill rates fell across the board Monday as benign inflation, improving fiscal condition of the government and speculations of a policy-rate cut by the central bank convinced banks to seek smaller risk premiums.

The bellwether 91-day rate fell 20.8 basis points to 1.8 percent from 2.008 following P5.8 billion in bids from highly liquid banks compared with the government’s debt offering of only P1 billion. Saying the government did not need more cash than it initially intended to raise, the auction committee accepted just P1 billion worth of bids.

The 182-day rate dropped 5.5 basis points to 2.117 percent from 2.172 percent as banks exhibited a significant appetite for the six-month debt paper as well. Bids for the six-month bills reached P6.72 billion compared with the P2.5-billion debt offering of the government. Sticking to the borrowing program, the government accepted P2.5 billion worth of bids.

The 364-day rate eased by 20.9 basis points to 2.279 percent from 2.488 percent given the substantial demand for the longest-dated T-bills. Bids for the one-year debt notes amounted to P8.16 billion compared with the government’s debt offering of only P4 billion. The auction committee again observed the borrowing program and accepted just P4 billion worth of bids.

Deputy National Treasurer Eduardo Mendiola said the decline in treasury bill rates was partly due to the benign inflation environment in the country. He said investors did not have any reason to seek higher yields for their investments in government bills given that consumer prices were behaving favorably.

The annual inflation rate averaged 3 percent in the first half. The government targets to keep inflation for the year at 3 to 5 percent.

“It was an easy auction. Downward movement across all tenors was partly due to the manageable inflation,” Mendiola said. “In addition, awareness of the government’s good cash position also helped lower the rates.”

Expectations that the government would register a lower-than-expected budget deficit for this year partly because of administrative reforms in tax collection was also taken into account by the market in pricing treasury bills, Mendiola said.

The improving fiscal position of the government reduces the chance of its defaulting on its debts, giving reason for banks to seek lower risk premiums, he said.