91-day treasury bill rate down to 4.978%

BY KARL LESTER M. YAP, BusinessWorld Reporter Yields for short-term government securities fell in yesterday’s auction as banks competed aggressively for a limited supply of Treasury bills. "This reflects the market’s very positive outlook on where the trends will go," National Treasurer Omar T. Cruz told reporters after the auction. Mr. Cruz cited the government’s ability to manage its deficit as a key factor for the low rates. "At the back of all this, it is the positive and improved fiscal outlook. The market is factoring into their outlook more revenues in April because of the tax season," Mr. Cruz explained. At the auction yesterday, the yield of the 91-day T-bill -- which banks use as a benchmark for pricing loans -- fell 3.9 basis points (bps) to 4.978% from 5.017% two weeks ago. A basis point is equal to a 0.01 percentage point. The average yield of the six-month paper declined 3.138 bps to 5.935% from 6.073%, while the yield for the one-year paper slid 33.3 bps to 6.75% from 7.083% previously. Banks’ appetite for government debt remained strong with the auction more than five times oversubscribed. Tenders reached P15.3 billion against a P3-billion offering. Banks polled by BusinessWorld said the market’s existing liquidity coupled with a fewer supply of T-bills caused the decline. "We are out of supply of T-bills. P3 billion is not enough to cover market demand," a government securities dealer from a local bank said. The government planned to issue fewer T-bills for this month, cutting back the auction to every two weeks from the usual weekly schedule. Aside from that, it also reduced the offered volume to P3 billion from P3.5 billion. "The market is still very liquid," another trader said, referring to the supply of money in the market. "The demand for government securities outweigh the supply," he added. Meanwhile, the peso yesterday appreciated against the dollar after the US reported sales of new homes plunged in February, the biggest drop in nearly nine years. As a result, the dollar tumbled against most currencies over the weekend. "Unexpectedly, the dollar fell against most currencies due to the housing report. This might signal a slowdown of the US economy which could lead to an end of the Fed’s tightening cycle," said Rovic M. de Guzman, Union Bank foreign exchange trading division head. The peso yesterday opened at P51.20, reached a low of P51.22 and a high of P51.13, before it closed at P51.14, 12 centavos higher from Friday’s close of P51.26. It averaged stronger at P51.17 against the dollar, up from P51.211 previously. Total volume of transacted dollars declined to $352 million from $363.5 million. Currency traders said the greenback was also weaker against regional currencies, particularly the yen which strengthened to around ¥116 levels from ¥118 previously. "We tracked regional currencies’ movements which strengthened against the dollar," a dealer from a local bank said. Analysts said the decline in US home sales could point to the end of the tightening cycle of the Federal Reserve. A separate report also suggested weakness in business spending plan, with new orders for durable goods outside the volatile transportation sector falling short of forecasts. New Federal Reserve Chairman Ben S. Bernanke will be leading his first rate-setting Federal Open Market Committee meeting this Monday and Tuesday where an outcome of another 25 basis point increase in the federal funds rate target is widely anticipated. It would be the Fed’s 15th consecutive rate increase since it began tightening credit on June 30, 2004. "Everyone is watching what the new Fed chairman will say, whether he hints of further rate hikes or if they will stop for now," a dealer said. Higher US interest rates could lead to fund managers to shift to dollar-denominated assets, creating more demand for dollars and cause the local currency to depreciate.