Yields for the benchmark 91-day T-bills went up to 6.356 percent from 6.097 percent two weeks ago.
According to National Treasurer Sergio Edeza, the interest rate on the bellwether notes could easily go up to as high as seven percent due to war concerns aggravated by the incremental costs related to the application of the value added tax on financial transactions.
"It’s a foregone conclusion that interest rates would hit seven percent," Edeza said. "But whether we will allow that is another matter. In all probability, we will reject such bids."
At yesterday’s trading, the auction committee was forced to reject part of the tenders and accepted only P1.47-billion worth of bids for the 91-day tenors.
Rates for the 182-day notes went up to 7.09 percent from 6.87 in the previous auction while that of the 364-day notes climbed to 8.158 percent from 7.891 percent.
Prior to the auction, traders said they expect T-bill rates to rise by as much as 50 basis points due to the weaker appetite for debt paper ahead a likely US-led war on Iraq.
They also said demand would be minimal with no papers due for maturity in the next two weeks.
On March 11, the Treasury rejected all bids for three-year T-bonds as yields spiked on worries about the impending war and the weaker peso. It was the seventh time this year the Treasury had rejected bids for government paper.
The repeated rejections have raised concerns over whether the government will be able to raise enough money to fund its budget deficit of around P202 billion this year.
With war uncertainty making foreign investors more skittish of Asian sovereign debt, traders expect the government to tap additional deficit-financing funds locally.
Over the weekend, Finance Secretary Jose Camacho said he was confident the government would meet its budget deficit target of P55 billion for the first quarter of this year.