Rate for 7-yr T-bonds drops to 9%

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Rate for 7-yr T-bonds drops to 9%
Posted: 0:56 AM Jan. 04, 2006

Inquirer

MARKET concerns on the government's long-term financial prospects have dissipated, judging by banks' response to seven-year Treasury bonds auctioned Tuesday, the Bureau of Treasury said.

The bond rate fell below the 10-percent mark at the auction, shedding 1.5 percentage points to 9.0 percent.

The seven-year T-bonds had fetched 10.5 percent when they were last auctioned on Nov. 15. National Treasurer Omar Cruz said his bureau had expected the interest rate to fall to 9.25 percent

"The market has now taken a long-term view on the fiscal position of the government by making very aggressive bids for the seven-year bonds," Cruz said in a press briefing after the auction.

Market players swamped the auction, submitting P12.08 billion worth of bids, more than thrice the P4 billion worth of bonds on offer.

Cruz said the drop in the bond rate could be expected to influence market response to other Treasury debt papers in coming auctions.

"Government efforts [to improve its finances] are paying off, and the market is rewarding the government for its fiscal discipline," he said.

He said the sharp decline in the seven-year T-bond rate indicated that market confidence brought about by government's positive performance to curb its budget deficit and reduce debt was not only short-term.

Last Monday, Treasury bills rates also fell across the board, with the rate for 91-day bills hitting 4.961 percent, the lowest since August 2002.

Finance officials attributed the declining interest rates to the implementation of government financial reforms, which significantly cut the budget deficit in 2005.

An expanded value-added tax law, implemented on Nov. 1 and considered as the centerpiece of the reform program, is estimated to generate P81.4 billion in additional annual revenue and boost efforts to achieve a balanced budget by 2008. With INQ7.net

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