91-day T-bills inch up to 5.883%

Treasury officials rejected the bids for the one-year Treasury bills for two auctions in a row yesterday, allowing slight increases only in the benchmark 91-day and 182-day Treasury bills (T-bills).

The average interest rate on the 91-day T-bills went up by 9.9 basis points to 5.883 percent but the market was noticeably thin as banks opted to take a cautious position in the wake of ongoing political controversies.

The average rate on the 182-day notes likewise went up by 14.3 basis points to 6.927 percent while all bids for the one-year notes were summarily rejected by the auction committee.

Deputy National Treasurer Eduardo Mendiola told reporters that the thin volume indicated the cautious stance that banks have taken in the light of prevailing political uncertainties.

According to Mendiola, the auction committee decided to reject the bids for the 365-day notes because the volume was thin and the bids were mostly throw-away.

The average rate on the one-year notes would have increased by as much as 25 basis points had the auction committee accepted the bids.

Last week, the auction committee also rejected the bids for the 182-day and 365-day notes, accepting only the 91-day rates which went up 5.784 percent from 5.691 percent in the previous week.

According to Mendiola, the short-term uncertainty caused the market to prefer the shortest-term notes with banks unwilling to bet on the one-year notes.

Market pessimism and supposed crowding in the global and European bond markets have forced finance officials to postpone its planned roadshow for this year.

Markets are expected to weaken further in the next few weeks but analysts said worries over political instability may be overblown and investors are likely to regain the momentum set early in the year.

Over the last few months, the currency, the stock and the bond markets have been picking up strength on the back of fiscal reforms in the Arroyo administration that analysts said created a real opportunity for sustainable fiscal turn-around.

However, the spate of political scandals involving top officials of the administration all the way to the chief executive has marred the otherwise improving landscape.

But analysts tended to agree that the political noise presented no real threat of actual leadership crisis, if only because there was no strong alternative to President Arroyo among the opposition.

The Bangko Sentral ng Pilipinas (BSP) said markets are expected to trade with uncertainty but only for a short period.

According to BSP Deputy Governor Amando M. Tetangco, there would be some short-term haze before the market actually regains its footing and resumes its initial momentum.

"The market will most likely look for clarification of current issues before regaining the bullish trend seen earlier this year," Tetangco said.

In a paper, ING Wholesale Banking analyst Tim Condon said a 1.5 percent drop in long-dated ROP bonds, a 2.8 percent plunge in the stock market and the peso testing the 55 level were the financial counterpart of the turmoil in Philippine politics.

Despite initial fears of a change in administration, however, Condon said the three main elements in Philippine politics were not present: people support, military and the Church.

"The president’s poll numbers are horrible but that is not going to be enough to reduce the inertia keeping people off the streets" Condon said. "Nor is the Catholic Church likely to support a people power revolt since President Arroyo is a devout catholic who leaned heavily on Church support to take the presidency."