T-bill rates may drop due to high demand

BY GERARD S. DELA PEÑA/BUSINESSWORLD TREASURY BILL rates are expected to drop further in Monday’s auction due to strong demand in the secondary market, as well as an imminent rate cut by the US Federal Reserve and Philippine central bank. T-bill rates are expected to fall by 10 to 15 basis points (bps) across all maturities. The benchmark 91-day T-bill may fetch 3.662% to 3.612% from 3.762% at the auction on Nov. 19. The six-month T-bill may yield 4.592% to 4.542% from 4.692%, while the one-year debt paper will likely end at 5.467% to 5.417% from 5.567%. The government will auction off P6 billion worth of T-bills. "T-bill rates will likely go down due to the lack of supply of short-term securities and the likely reduction of overnight rates by the central bank," a government securities trader said. Another trader said T-bills have been scarce in the secondary market, with banks left with nothing to sell to retail investors. Banks’ move to increase the supply of T-bills in the secondary market will pull down rates, she said. Meanwhile, rates of fixed-income securities as a whole are expected to decline as the central bank aligns its rates with the Fed. Offshore investors think the Fed is up for yet another rate cut when it meets on Dec. 11, in a bid to spur the US economy. "T-bills may go down but not too much since they are already at support levels. T-bill rates are already quite too low at this point," Security Bank Corp. Treasurer Rafael Algarra said. But a third trader said there is a chance for T-bill rates to rise from its Nov. 19 levels as a result of political tension brought about by the failed military mutiny on Thursday. "If not for the fiasco, we are actually looking at a 2.5 to 5 bps lowering of rates across the board. This is also in anticipation of the Fed’s and Bangko Sentral ng Pilipinas’ (BSP) rate cuts this month," the trader said. However, the trader cautioned that the Treasury might reject bids if banks insist on hiking rates by more than 10 basis points. Meanwhile, the peso is expected to continue its rally against the dollar as remittances surge in time for the Christmas holidays. A currency trader said the local currency is still poised to appreciate, having managed to close at a new seven-year record of P42.75 on Thursday despite the political turbulence. This was 11 centavos stronger than Wednesday’s P42.86 finish. "Foreign exchange trading is very sensitive to political instability. Since there was no violence from the event last Thursday, the peso might continue appreciating," the trader said. "But that would still depend on the movement of New York equities and investor sentiment on the dollar," he added.