T-bill rates drop across the board

MANILA, Philippines – Strong demand pushed Treasury bill rates down across-the-board yesterday, prompting the government to make a full award of the debt papers despite recent financial market volatility.

The benchmark 91-day paper – used as basis for short-term debts – fetched a rate of 1.684 percent, down from 1.836 percent in the previous offer last Dec. 7.

The 182-day and 364-day securities also saw a decrease in rates to 1.642 percent and 1.740 percent, respectively. They were last offered at 1.843 percent and 1.952 percent.

“Auction results reveal strong performance for the short-dated securities despite thin market activity at the shorter end of the curve and downside regional growth and currency risks,” the Bureau of the Treasury said in a statement.

“The first T-bill auction for the year was more than twice oversubscribed,” it added.

Aggregate tenders for the three tenors reached P43.5 billion against a P20-billion offer. The government sold P8 billion each in 91-day and 182-day papers, and P6 billion for the one-year debt, as planned.

For the first two weeks of the year, financial markets were roiled anew by a slowing growth in China, the world’s second largest economy, as well as weak demand that has pushed commodity prices down globally.

This, in turn, resulted in investors asking for higher rates to hold into risky assets such as Philippine securities. In the 10-year Treasury bond auction last week, rates rose 593 basis points to 4.218 percent.

During times of distress, investors prefer to hold into assets considered as safe havens such as US Treasuries or the Japanese yen because they are supplied more in the market than risky ones.

T-bills and T-bonds are instruments used by the government to borrow money from local investors. They are sold with specific interest and payment terms.

Sought for comment, Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said with the current uncertainties, investors want to make sure they can get their money back anytime.

“In light of the view of rising interest rates, demand for short-term bills rises as they park their funds in the near-term,” Ravelas said in an e-mail.

This means investors would not like to lock in their rates for longer period because there is likelihood they would rise further, he said.

Despite slowing growth globally, the US Federal Reserve increased interest rates last December for the first time in nearly a decade. This created a wave of rising rates elsewhere with investors leaving Asia for the world’s safe haven.

Meanwhile, a bond trader at a local bank said the results were due to refinancing needs of investors later this month.

“There were matured obligations last week and maturing ones later this week. So it’s more of a reinvestment for them,” the trader said in a phone interview.

As to the government making a full award, she said the Treasury took advantage of the healthy reception from bond takers.

“In the past, you would notice that the government makes a full award if it sees large tenders for the paper and partial award when the tenders did not even meet the offer size,” the trader explained.