T-bill rates down across the board

Interest rates on government Treasury bills (T-bills) dropped across the board yesterday as the market expects some let-up in government borrowing.

The market opened yesterday with news that the power rate of the National Power Corp. (Napocor) has been adjusted by another 48 centavos on top of the 98 centavos approved by the Energy Regulatory Commission (ERC) last year.

At the Philippine Dealing System (PDS), the peso gained another eight centavos to settle at 54.090 to the dollar from Friday’s close of 54.17 to $1. Total transactions amounted to $374.50 million.

BSP Deputy Governor Amando Tetangco said the continued strenghtening of the peso against the dollar was due to "the bullish sentiment on the local currency due to the decision to address Napocor’s deficit, expectations that VAT will be passed soon, better regional currencies and the influx of OFW remittances."

Treasury officials said the market was anticipating a reduction in the government’s budget deficit, reducing the pressure for the national treasury to keep borrowing from domestic market.

The auction committee reported that tenders in yesterday’s T-bills auction were oversubscribed with total volume reaching P21.755 billion as against the total offering of P6 billion.

The auction committee made a full award for 91-day, 182-day and 364-day bills and the average rate for the benchmark 90-day T-bills went down by 0.6 basis points to 6.551 percent while the rate for the 182-day notes went down by 12.3 basis points to 7.727 percent.

On the other hand, the rate for the 364-day T-bills dropped by 11.4 basis points to 6.678 percent.

According to Deputy Treasurer Eduardo Mendiola, the decline in interest rates stemmed from expectations that the reduction in Napocor’s losses resulting from the increase in its power rates would also help reduce public debt.

Mendiola said they expect interest rates to stabilize at these levels although the market is still expecting the Senate and the house of Representatives to ratify the amendments to the value-added tax (VAT) law that would further boost government revenues.

The optimism is tempered only by the conditions in the international credit market that officials said were still too hostile for emerging markets.

Finance officials earlier had to quel rumors that it was planning a $500-million bond offer, although they added that following the ERC decision, the Napocor would now have more flexibility to borrow on its own and shop around for affordable loans.

Corporate bond investors have been bracing themselves for the drastic downgrade of General Motors, fearing its effect on the wider market.

With $921 billion of debt outstanding, the troubled US car maker has been teetering on the edge of a fall to junk rating status, a move that treasury officials said could have serious repercussions for many fund managers.

"Even investment-grade issuers are edgy over the repercussions of GM’s problems," said national treasurer Omar Cruz. "Who in his right might would go to the market under these conditions?"

GM’s possible downgrade has already burned several emerging market issuers, with Indonesia suffering serious burns and Uruguay backing out of its own plan to launch a bond offer.