The interest rate on the 92-day T-bills went up to an average of 7.634 percent compared with 7.317 percent in the previous auction. This is also higher than the policy rate of the Bangko Sentral ng Pilipinas (BSP).
National Treasurer Mina Figueroa told reporters that the market was overly cautious ahead of the expected increase in US interest rates when the US Federal Open Market Committee meets on June 29.
The auction committee awarded a total of P1.433 billion worth of 92-day T-bills against total tenders amounting to P2.213 billion and an offering of P4.5 billion.
The committee, however, rejected P1.24 billion pesos worth of tenders for 183-day tenors and another P1.24 billion for 365-day notes. Both were under-subscribed as the government offered P3.5 billion worth of 183-day T-bills and P3.0 billion of 365-day T-bills.
The six-month and one-year rates averaged 8.631 percent 9.416 percent, respectively, in the previous auction.
"I think the market is just being overly cautious despite the (Philippine) central bank’s announcement that even if the Fed increases key interest rate by 25 basis points, it will not counter it with a rate hike," Figueroa said. "(But) why would I allow the rates to go up when I know that the market is very liquid?"
According to Figueroa, the government’s cash position is good enough to allow the auction committee to reject bids that are too high.
For the remainder of the year, the government is expected to concentrate on its domestic borrowing after having completed its foreign borrowings shortly before the May national elections.
The government has just completed its $200-million zero-coupon bond issue intended to generate funds for its budget deficit and maturing obligations, taking advantage of the market ahead of the mounting pressure towards the May polls.
This developed as the BSP announced that the country’s outstanding external debt increased by seven percent to $57.4 billion at the end of 2003 compared to levels in the previous year.
The government’s debt burden is expected to increase even more as the Arroyo administration decided to absorb some P600-billion worth of foreign debt of the National Power Corp (Napocor).