364-day T-bill rate drops to 6.846%

The average rate of the 364-day Treasury bill (T-bill) declined to 6.846 percent during yesterday’s auction from the previous rate of 6.915 percent as the government’s auction committee only made partial awards of the debt paper.

The committee accepted P1.620 billion worth of bids as total tenders reached P8.44 billion.

Had the government’s auction committee accepted all the bids, the average rate of the one-year paper would have risen to 7.044 percent.

Finance Undersecretary and Acting National Treasurer Roberto Tan said the government made only a partial award of the debt paper as it did not really need the cash.

Tan also said the rate that the committee accepted was within the rates in the secondary market.

As this developed, Tan said the government would again auction another set of paired warrants on Thursday, its second issuance after an auction last February.

Tan declined to provide details on the size of the issuance on Thursday.

Last February, the government issued two million warrants at $7.50 each.

Tan expects strong demand for warrants given the market’s better understanding of the product.

Paired warrants may be exercised in the event of a default of its international bonds.

Furthermore, paired warrants will allow holders of Philippine foreign currency bonds to exchange their peso-denominated bonds in case of a credit default.

In economic jargon, a warrant is a derivative security that gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame.

Officials said the issuance of warrants would alleviate pressure on Philippine banks to look for products that may be risky for them and for investors.