Weaker inflation, more cash drag down T-bill rates

Treasury bill rates further fell on Monday (June 10) dragged down by easing inflation and more money in the market, allowing the Bureau of the Treasury to pay off P15 billion in short term securities.

National Treasurer Rosalia V. de Leon told reporters that the National Treasury would likely sell a smaller volume of treasury bills and bonds in the third quarter of 2019. It sold P315 billion worth of T-bills and bonds in the second quarter of the year as underspending brought by a reenacted budget kept ample cash in government coffers.

The Treasury sold P4 billion in benchmark 92-day T-bills at an average rate of 4.555 percent, down 43.7 basis points (bps) from 4.992 percent last week.

It also paid off P5 billion in 183-day IOUs at 4.923 percent, down 47.7 bps from 5.4 percent a week ago.

The P6 billion in 365-day T-bills fetched an annual rate of 5.069 percent, down 42.9 bps from 5.498 percent previously.

The yields for all three tenors, or periods of maturity, were all below secondary market rates, the Treasury said in a statement.

The Treasury added one day for each of the tenors in anticipation of the June 12 no-work holiday when the country celebrates its indeoendence.

Tenders, or bids, totaled P49.6 billion, making the auction over three times oversubscribed.

De Leon said while inflation inched up to 3.2 percent year-on-year in May, government securities remained attractive to investors after the Bangko Sentral ng Pilipinas (BSP) assured that it was on track to meet its inflation forecast of 2.9 percent for the entire 2019.

T-bills also became more appetizing to investors after the reserve requirement ratio, or amount of cash that must be intact, was lowered for banks, De Leon added.

Also, she added, the Philippines was enjoying a windfall from the trade war between the two largest economies in the world—United States and China—in the form of so-called hot money being poured in by investors looking for safe havens.

Declining rates should be expected to linger, De Leon said.

She added that domestic borrowing, or loans from Philippine sources, by the government in the third quarter of 2019 would likely fall below P325 billion as a result of weaker spending although levels of domestic borrowings were maintained and boosted by foreign debts.

The Philippines already sold US dollar-denominated global bonds, renminbi-denominated panda bonds and euro bonds during the first half of 2019.

De Leon also noted positive developments in revenue collections, saying taxes and other government incomes gave the government “more than enough cash to be able to finance sustained higher spending for the next quarter or so.”

The government needs at least P3 trillion for its ambitious “Build, Build, Build” infrastructure program.