Investors’ lack of options cited
TREASURY BILL (T-bill) rates plunged at yesterday’s auction as investors, limited with their options, competed for the debt papers.
The bellwether 91-day T-bill fetched 0.775%, 70.500 basis points lower than the 1.480% accepted at the November 15 auction. The six-month paper fetched 1.650% while the one-year paper yielded 2.383%, sliding from the 1.983% and 2.394%, respectively, that were accepted at the previous auction.
"Rates of the Treasury bills are at an all-time low due to the high liquidity in the market, positive inflationary expectations and the central bank’s stance to maintain its borrowing rate at 4%," National Treasurer Roberto B. Tan told reporters after the auction.
Orders for the 91-day T-bill reached P4.1 billion, four times over the government’s P1-billion offer, while those for the six-day paper amounted to P8.33 billion, more than three times the P2.5 billion on offer. Tenders for the one-year T-bill totaled P7.96 billion, more than twice the government’s P3.5-billion offer.
The Treasury sold P7 billion worth of T-bills as planned.
The 91-day rate has been sliding since the Oct. 4 auction.
Analysts said the lower rates favored the government, which will now pay lower interest. Banks may also reprice their loans lower, to the advantage of the public.
Benjamin E. Diokno, an economist at the University of the Philippines and a former Budget secretary, remarked that the lower rates would result in a "lower financial obligation for the government when the papers are redeemed."
Pascual M. Garcia III, president of thrift bank Philippine Savings Bank, said banks that reprice their loans could see an upsurge in applications.
"The low rates would cause a high demand for loans, expanding banks’ loan portfolio," he said. "[Low interest rates] are attractive to businesses that are considering to invest in capital items."
"Since these are short-term debt papers, some corporate loans will be affected because some interest rates by commercial banks are tied up with the Treasury bill rates plus 1%," he added.
"Lending rates of existing loans that have that kind of mechanism will come down as well."
Rizal Commercial Banking Corp. Senior Vice-President Marcelo E. Ayes, however, said banks would think twice before repricing since this would affect their net interest margin, or the spread between the interest they pay on deposits and the interest they charge on loans.
"An increase in loans due to the low interest rates will mean lower income for banks, [and] at the same time, incur more risk as not all borrowers can pay their debts on maturity date," he pointed out.
Mr. Ayes also said that demand for T-bills was high as a result of efforts by the Bangko Sentral ng Pilipinas (BSP) to weaken the peso.
"Since the BSP is not present in the swap market, investors have nowhere to invest their money, so they turn to short-term assets such as Treasury bills and bonds," he explained.
Investors are preferring short-term rather than long-term assets due to the bond swap to be launched today, Mr. Ayes noted.
Deanno J. Basas, investment director at ATR KimEng Asset Management, agreed with Mr. Ayes and called the ultra-low T-bill rates an "aberration."
The BSP has stayed away from the swap market by deliberately not rolling over its positions, thereby creating a shortage of dollars. This has the effect of heightening demand for the greenback while weakening the peso.
The peso has fallen to the P44-per-dollar level after reaching P42 in early November.
What has been happening at the T-bill auctions, Mr. Basas said, "is a function of the amount of liquidity in the system... investors are limited to just government securities and supply is often not commensurate with demand."
How long this situation will last, he said, depends on the BSP.
Central bank governor Amando M. Tetangco, Jr. has said the BSP was acting in the swap market in order to dampen excessive peso volatility.
The peso had gained over 8% at one point this year because of heavy dollar inflows from remittances, portfolio investments and the state’s dollar borrowings.
More inflows are expected as the US Federal Reserve cranks up dollar printing in line with "quantitative easing or QE2," that is intended to stoke growth in the slumping US economy.
Inflation, meanwhile, is not expected to be a problem in the coming months.
The BSP now expects full-year inflation at 3.6%. Forecasts for 2011 and 2012, meanwhile, were also cut to 2.4% from 3% and 2.8% from 3%, respectively.
Inflation fell to 2.8% in October -- an eight-month low, principally because of the stronger peso -- bringing the year-to-date average to 4%, well within the BSP’s 3.5-5.5% target.
With inflation not a threat, the BSP has continued to keep its overnight borrowing and lending rates at 4% and 6%, respectively. -- ARRG, JTG
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