Rate for 7-year T-bonds declines to 7.197%

The average rate of the government’s seven-year Treasury bonds (T-bonds) declined by 7.5 basis points to 7.197 percent yesterday from 7.272 percent fetched last Aug. 12.

At yesterday’s auction, the government made a partial award of bids amounting to P7 billion as total tenders reached P21.4 billion.

Finance Undersecretary and National Treasurer Roberto Tan attributed the decline in rates to banks’ strong liquidity position, improving investor sentiment in the country and the general shift of investors from overnight placements with the Bangko Sentral ng Pilipinas (BSP) to government debt papers.

“Tenders have been oversubscribed. There is still a migration from overnight placements,” Tan said.

He said there is a renewed interest on Treasury bills (T-bills) and bonds after the BSP announced that it would start collecting 20 percent withholding tax on overnight placements.

The BSP announced last month that it would start collecting the final 20 percent withholding tax on overnight placements, which currently have an interest rate of six percent.

In a circular issued on Aug. 22, 2008, BSP Governor Amando M. Tetangco Jr. said the tax would be collected retroactively to Jan. 1, 2008.

Tetangco noted that under the National Internal Revenue Code (NIRC), the reverse repurchase transactions of the BSP and banks were included in the definition of the term “deposit substitutes.”

These so-called deposit substitutes are all subject to 20 percent final withholding tax. As such, the BSP said it would start withholding the tax on its overnight reverse repurchase transactions.

Tan said the tax on overnight placements made government securities more attractive and competitive.

Tan also attributed the decline in interest rates to improving investor sentiment due to easing commodity prices.

Inflation rose 12.5 percent in August, the highest level since December 1991, but within the 11.8 to 12.6 percent forecast range of the central bank.