Benchmark T-bill yield drops to 4.961%, lowest in 3 years

By Des Ferriols
The Philippine Star 01/03/2006
http://www.philstar.com/philstar/news200601030701.htm

Treasury bill (T-bill) rates plummeted below the five percent mark yesterday, with the interest rate on the benchmark 91-day notes closing at a three-year low of 4.961 percent.

Market sentiments fueled the government’s first T-bill auction for the year, flooding the market with liquidity as expectations ran high amid a projected decline in the Arroyo administration’s borrowing requirement for 2006.

At yesterday’s auction, the 91-day T-bill offer was three times oversubscribed while the 182-day notes were nine times oversubscribed. The 364-day T-bill offer was over 11 times oversubscribed.

As a result of massive cash going into the system, the interest rates on the bellwether 91-day T-bills went down by 18.5 basis points to 4.961 percent while the 182-day notes plunged by 39.9 basis points to settle at 6.807 percent.

The interest rate on the one-year notes declined by 35.1 basis points to settle at 7.611 percent.

Records from the Bureau of the Treasury (BTr) indicated that yesterday’s average rate for the 91-day T-bills approached the three-year record of 4.299 percent set on March 30, 2002.

National Treasurer Omar Cruz told reporters that yesterday’s auction result was an overhang from last year’s momentum, spilling over into the early parts of the year.

"The effect of this momentum was also magnified by the anticipated reduction in the government’s borrowing program," Cruz said. "Everyone knows that what we are doing now will be based on our maturities, our cash position – all of which look good this year."

As a result, Cruz said banks opted to be aggressive since government securities offered this year are likely to be thin, a development that would not bode well for banks which are still reluctant to lend.

Market analyst said market liquidity was "horrendous" because banks are still "gun-shy towards lending."

Since the government’s T-bill offer this year is not likely to expand and could even go down, banks would have no other outlet and the rate will continue to go down, analysts said.

Interest rates would go down, said one analyst, because all banks are catering to only one credit-worthy client: the government. "It becomes a borrowers market in which the interest rates would go where the borrower tells it to go," he said.

Since the National Government has been the last and only creditworthy borrower in the market, yesterday’s performance of government T-bills is likely to be sustained at least during the early part of the year.

"I’d like to think that the market also has an intuitive sense of how our year-end fiscal performance is going to look like so they know we are starting off the year on the right footing," Cruz said.

Lower interest rates on government T-bills indicated that the Arroyo administration would not have to pay as much for its domestic borrowing but this means little to ordinary borrowers.

The decline in the T-bill rates only meant that prime borrowers would have access to increasingly cheaper funds while ordinary borrowers would remain out of the loop.

The determining factor would still be the confidence of the banking industry on the prospects of the manufacturing sector which was still operating below capacity, indicating that there was no demand for borrowing anyway.