T-bill rates drop to all-time lows

Local interest rates plunged to all-time lows in yesterday’s Treasury bill auction with the yield for the benchmark 91-day T-bill hitting 6.714 percent from 6.911 percent a week earlier.

The Bureau of Treasury said the rate for the 182-day T-bill also fell to an all-time low of 7.086 percent from 7.288 percent last week.

Commercial banks use the 91-day Treasuries as benchmark for setting their prime rates, or the interest rate they offer to their most prestigious borrowers.

Bid applications for the three-month debt notes, which was down for the 10th consecutive week, amounted to P5.988 billion, resulting in the full award of P1.5 billion.

Deputy National Treasurer Eduardo Mendiola said that "even as the rates are at their historic lows, there is still a likelihood that rates will be further reduced."

"We can conclude based on tenders offered that there is ample liquidity in the system and there is the possibility that we could continue to set record lows in the coming weeks," he said.

Mendiola said that with lower rates, it will be a good time for government to lengthen the maturities of its offerings.

Today, the Bureau of Treasury will be issuing 20-year bonds worth P4 billion, the first time government will issue such long-term bonds since April 1997.

Mendiola said he expects the 20-year bond issuance to fall below secondary market rates which was trading at 15.5 percent yesterday.

Government securities traders said the results of yesterday’s auction was expected and most agreed that the rates will continue to slide in the next few weeks.

However, some traders said the decline in interest rates "do not quite tell the whole story."

"One should look at it from the perspective that the drop in rates was mainly for the smaller-sized T-bill vis-a-vis the liquidity in the system. The distinct line, however, is that the lower rates were for the short-term notes and it should be noted that interest rates were moving higher for longer-termed maturities, resulting in an even steeper yield curve," a trader from a foreign commercial bank said.

Market analysts said yesterday’s auction results will fail to impress and convince the market that such rates could be sustained over a long period that will encourage banks to expand their lending at reduced interest rates.

"The government for one has to begin reducing its local borrowings for rates to really go down and can be sustained say, for about a year. But right now what government has shown is that while it issued global bonds recently, it has not slowed down on its local borrowings," an analyst from a local commercial bank said.

The same analyst added that a lot remains to be seen as far as Bangko Sentral ng Pilipinas (BSP) policies are concerned.

"The BSP has to show that they can maintain these rates for a sustained period, but if they cannot be consistent, it will be difficult to maintain the lower rates for a long time," he said.

Earlier, the BSP said commercial banks continued to adopt a "catious lending stance" amid "restraining credit demand from the corporate sector" as well as high levels of non-performing loans that rose to 18.3 percent of total loan portfolio in January.