T-bill rates fall sharply due to strong demand

Treasury bill (T-bill) rates fell sharply across the board yesterday as banks scrambled to buy government securities to make up for bonds which matured last week.

"The market is liquid. We have bonds which matured around P40 billion so the banks just replaced that," Deputy Treasurer Mina Figueroa told reporters after the fortnightly T-bill auction.

The average yield on benchmark 91-day T-bills plunged by 58.2 basis points to settle at 6.842 percent from 7.434 percent at the previous auction while that of the 182-day T-bills went down by 63.9 basis points to 7.761 percent from 8.4 percent.

Prior to the offering, debt traders said T-bills rates were likely to drop by 20 to 30 basis points on average because of huge maturities last week worth around P28 billion.

Strong demand was also felt on the longer tenor as rates for the 364-day T-bills eased by 43.1 basis points 8.41 percent from 8.841 percent during the previous auction.

All tenors were oversubscribed by roughly 50 percent, prompting the Treasury to push through with its plan to open a tap facility and issue fresh promissory notes this month.

According to Figueroa, the market is awash with cash which should push interest rates further down even on the long-term T-bonds scheduled for auction today.

She indicated that yields for 10-year bonds to be auctioned today may also fetch lower yields. The Treasury last offered 10-year bonds on March 25, 2003, which fetched a coupon rate of 12.75 percent.

"Tomorrow (today), it will be the 10 years. It’s a paper that is usually bought by insurance companies. Some banks may be buying this paper for re-selling to insurance companies," Figueroa said.

The auction committee accepted only P4 billion worth of 91-day T-bills out of total bid applications amounting to almost P10 billion. Bids for the 182-day bills amounted to P5.01 but the Treasury accepted only P3 billion while only P2.5 billion was accepted out of P7.035 billion worth of bids for the 364-day T-bills.

"Because of today’s oversubscription, we have decided to open a tap facility of P1 billion for the 3-month bills and another P1 billion for the one-year bills," Figueroa said. "The market has been very liquid today."

According to Figueroa, the market liquidity came from maturing Treasury bonds that banks used to roll over to buy other government securities.

"There is also more optimism because government collection has been good in April," she said. "On top of better government revenues, the inflation rate has also been better than expected."

Interest rates have been going down gradually over the last two auctions despite the initial jitters spawned by the credit ratings downgrade announced by New York-based Standards & Poor’s.

The market has been bracing against the possibility of a sharp rise in interest rates because of the downgrade which was expected to make it more difficult for the government to raise funds through borrowings from both the domestic and foreign markets.