T-bill rates decline across the board

Treasury bill (T-bill) rates dropped across the board at yesterday’s auction, with the government accepting all bid applications for all issues for the first time in months

Rates for the 91-day T-bills, which banks use as a benchmark to price loans, went down to 7.125 percent against the 7.443 percent average recorded during the last auction, on a full award of P4.5 billion.

Bid applications for the 91-day T-bills went up to as high as P9.81 billion.

The average rate on the 182-day bills, on the other hand, also fell to 8.186 percent from 8.472 percent in the previous auction on a full award of P3.5 billion and tenders of P5.99 billion.

The rate for the one-year bills averaged 9.176 percent against 9.315 percent previously. The government made a full award of P3 billion of one-year bills against total tenders of P4 billion.

"The market may have factored in some positive developments, such as measures to address the country’s deficit concerns," Deputy National Treasurer Eduardo Mendiola said.

"Hopefully, this trend will continue (so) that we would have the needed liquidity at cheaper rates," he said.

Mendiola also attributed the declines in the T-bill rates to some P1.5 billion worth of government obligations maturing on Aug. 1, which are likely to give banks more funds to invest in government securities, as domestic lending activity remains sluggish.

Yesterday’s auction results marked the first time that the BTr enjoyed some relief from continued assault by banks that want interest rates to go.

Rates for the 91-day T-bills averaged 7.714 percent in early June because banks were expecting an increase in the policy rates of the Bangko Sentral ng Pilipinas (BSP).

This year, interest rates are expected to remain benign despite the government’s heavy presence in the domestic credit market.

The BSP said that rates this year will remain within target although it is reviewing its monetary stance for 2005, due to the anticipated increase in US interest rates next year.

The US Federal Open Market Committee (FOMC) has been unusually open about its plan to increase US interest rates, spawning speculation that rates could go up by as much as three to five percent by the end of 2005.

According to BSP Governor Rafael B. Buenaventura, however, a corresponding increase in Philippine policy rates was not automatic and might not even be necessary.

"At this point, we are plotting the different scenarios and trying to anticipate how our aggregates would look like in each of them," Buenaventura said. "But I still maintain that our own interest rates have already adjusted to external and internal factors, we might not have to do anything at all."

Buenaventura said the market was anticipating the FOMC to raise US interest rates by another one percentage point before the end of the year and one percentage point in 2005.