Benchmark T-bills sold anew

THE GOVERNMENT yesterday sold benchmark 91-day Treasury bills for the first time in five months, but not after capping the debt yield to align with secondary market rates.

The favorable inflation outlook, meanwhile, allowed the government to borrow at a lower cost for its one-year debt papers.

Banks demanded an average yield of 6.19% for the 91-day T-bill, but the auction committee capped the rate at 6.122%, or 42.3 basis points higher than the 5.699% these securities fetched in a July 7 offer, when they were last sold.

The three-month IOUs, which banks use as basis in pricing loans, made a comeback this quarter through two fortnightly auctions in October. Both auctions, however, failed as banks demanded bids the Bureau of the Treasury deemed "unreasonable."

Since it limited the rise in 91-day T-bill yields at yesterday’s auction, the Treasury was able to sell only P1.3 billion worth of these debt papers, a little over half of the planned P2.5-billion offer.

"We just wanted to follow the market done levels," National Treasurer Roberto B. Tan told reporters.

The Treasury, meanwhile, awarded bids for one-year securities in full, or P2.5 billion. Debt papers of this tenor yesterday fell nearly three-quarters of a percentage point to 6.414%, from 7.111% in a Nov. 24 offer.

The auction results were widely expected as inflation’s return to the single-digit territory in November bolstered beliefs that interest rates would be on a downhill trend, traders said.

The market has already factored in at least a quarter-percentage point cut in the central bank’s key policy rate on Dec. 18, when the Monetary Board convenes to review rates, they added.

"A lot of investors are now gaining confidence in placing their cash in safe securities particularly in government securities," Mr. Tan said."There’s also this positive outlook on domestic inflation as well as on prices of commodities, particularly oil. This is in a way influencing sentiments in financial markets."

The auction was four times oversubscribed at P20.12 billion, with appetite leaning toward one-year debt papers.

"The depth of trading in one-year [T-bills] is a lot better in terms of the liquidity they may be needing," Mr. Tan explained.

Yesterday’s auction puts a lid on the government’s domestic borrowing for the year, the amount of which has already exceeded official targets, Mr. Tan said.

"[Domestic borrowing] was more than programmed for defensive purposes. I think we made the right decision," he said, adding that excess borrowing should give the government a hedge against "any eventuality."

The government’s domestic financing requirement for 2008 was initially set at P260.7 billion. Changes in the budget deficit target, now at P75 billion, however, prompted it to revise the domestic borrowing cap to P332.7 billion.

Official data from the Bureau of the Treasury showed the net borrowings from the local capital market at P371.08 billion as of October, which included an unplanned P60 billion retail bond float.

Gross domestic borrowing as of yesterday, which listed only funds raised from auctions and excluded debts issued over-the-counter and net maturities, meanwhile reached P203.977 billion.