T-bills up sharply; peso gains

Treasury bill (T-bill) rates rose sharply yesterday due to a reduced appetite for debt papers in the wake of the Bangko Sentral ng Pilipinas (BSP) directive for banks to raise their reserve requirement by another two percentage points.

At the same time, the peso continued to gain against the dollar, closing at 51.21, or 64 centavos higher than Friday’s close of 51.85 to the dollar.

At the weekly T-bill auction, yields for all tenors rose sharply with the benchmark 91-day T-bills rising by 43.70 basis points to 9.652 percent from 9.215 percent a week ago.

Rates for the 182-day T-bills went up even higher by 66.40 basis points to 11.525 percent, while the one-year bills climbed by 56.90 basis points to 12.557 percent.

Despite the rise in T-bill rates, Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said the BSP will keep interest rates at "low levels" as the peso continues to appreciate against the dollar.

"We intend to keep interest rates at low levels. We’re not trying to push up rates as some people are trying to say," he stressed.

The Bureau of Treasury last week rejected all bids for the three tenors due to high rates posted by banks. The last successful auction for the 91-day paper was on July 30 when it fetched a rate of 9.215 percent.

"The market has somewhat recovered already. Last Friday, yields went up as banks dumped short-term bills to generate liquidity to cover their requirements for reserves," a trader from a foreign bank said.

Deputy National Treasurer Eduardo Mendiola said the yields were reflective of the market sentiments. "The bids reflected what the market wants since these are the rates that we rejected last week," Mendiola said.

While the bids in the previous weeks were considered as "throwaway bids" this time the volume was substantial and could be considered as a benchmark, Mendiola said.

"Liquidity is still the banks’ concern at the moment," a trader from a foreign bank said.

The same trader added that compared to last Friday’s auction in the secondary market, yesterday’s rates were already about 50 basis points lower as the market already factored in the announcement by the BSP of another two percentage points increase in reserve requirements.

"The impact of the reserve hike already had an impact last Friday and was not so much a factor anymore but for the appetite expressed by the market," another trader said.

At the Philippine Dealing System (PDS), the peso opened at 51.95 before hitting a high of 51 and a low of 51.950 to the dollar. It averaged at 51.278 :$1.

Buenaventura said the BSP was able to stabilize the peso by taking out excess liquidity in the financial system.

"The peso will be range bound and stable at current levels, and this will continue in the coming weeks as excess liquidity was already taken out of the system for the time being," Buenaventura said.

The BSP chief added the market, which was jittery in recent weeks on concerns about peace and order and a deteriorating economy, has already calmed down.

"The panic has subsided. I think people found the projections of the peso going down to P60 to the dollar as not correct,"Buenaventura said.

Also going well for the local currency according to Buenaventura is that import requirements have also been satisfied as reflected by weakened demand from corporates, while export levels remained stable at current levels.

The peso is expected to continue to stabilize in the coming weeks "because excess liquidity has been taken out for the time being, unless the economy slows down any further," Buenaventura said.