91-day T-bill rate drops to 4.978%

Treasury bill (T-bill) rates went down across the board yesterday as market confidence continued to pick up, sending the benchmark 91-day T-bill rate below the five- percent mark for the first time this year at 4.978 percent from the previous rate of 5.017 percent.

Treasury officials said all tenors were over-subscribed, noting a distinct shift from the short-term 91-day T-bills to longer-tenor 364-day T-bills and the benchmark Treasury bonds.

The rate for the 182-day T-bill declined to 5.935 percent from 6.073 percent, and the yield for the 364-day T-bill fell to 6.750 percent from 7.083 percent.

Investors offered to buy P15.3 billion of the bills, allowing the government to sell all of the P3 billion it planned to auction.

The government is selling T-bills every two weeks from every week in the previous two months.

National Treasurer Omar T. Cruz told reporters that investor demand for government securities has changed across the board, with banks shifting towards the longer-end of the spectrum in search for higher yields.

"You can see immediately the comfort level of the market in the volume of trade even in the benchmark bonds," Cruz said. "Confidence is picking up in a significant way and people are able to look farther beyond the short-term t-bills."

According to Cruz, trading in the benchmark bonds have also picked up within a short period, with the daily trade volume for the benchmark three-year bonds averaging between P1.5 billion and P3 billion.

Cruz said the volume was even bigger for the five-year bonds, averaging between P4 billion and P6 billion everyday while trading for the seven-year bonds averaged at P3.5 to P6 billion.

"The appetite of the market is for longer tenor because the pick-up there is higher," he said. "That means the market is very positive and looking at long-term prospects. You can do that only when there is some predictability and consistency in the environment you’re invested in."

Cruz said the oversubscription was an indication of the size of liquidity circulating in the financial system in search of investment haven amid declining government requirement for fresh borrowing.

"This shows restored confidence and comfort of the market in the overall situation buoyed by positive fiscal position presented earlier," Cruz said.

Cruz said given this momentum, it would be easy for the Arroyo administration to meet and even surpass its fiscal targets for the whole of 2006.

Cruz said earlier that the Arroyo administration could easily trim down its budget deficit down to 2.1 percent of gross domestic product (GDP) this year and "very easily" balance the budget by 2008.

Cruz told reporters that the budget deficit actually fell to 2.7 percent of GDP in 2005, bringing the Arroyo administration closer to its 2006 goal of 2.1 percent.

At 2.1 percent of GDP, the budget deficit should go down from P146.5 billion to P125 billion. However, Cruz refused to say where the deficit level was likely to end this year.

"I wouldn’t pick a number, it’s too early in the year," Cruz said. "I’m just saying that it can happen very easily since we have had two years of successive overperformance."

Cruz said that although the Bureau of Customs and the Bureau of Internal Revenue have been missing their collection targets, the year-on-year increase in revenues still provided enough room to outperform the deficit target.