Five-year interest rate rises

Published October 12, 2021, 3:40 PM

by Chino S. Leyco

The benchmark interest rate on debt falling due in five-years rose at Tuesday’s auction of the government IOUs at the Bureau of the Treasury.

Investors were willing to buy as much as P56.083 billion of the five-year Treasury bonds, nearly double the government’s offer of P35 billion.

The rate of the IOUs increased to 3.576 percent from 3.375 percent during the Sept. 2 auction, jumping by 0.20-basis point in just over five-weeks. The bureau made a full award of its P35 billion offer.

Despite the increase in interest rate, National Treasurer Rosalia V. de Leon said the yield was still reasonable given the high inflation expectations.

De Leon also noted that the awarded T-bond yield followed the rates in the secondary market.

“Do not compare with the average of previous auction when inflation was low. Secondary market level is 3.52 percent already,” de Leon told reporters after the auction.

On Monday, investors also pressed for an increase in Philippine benchmark interest rates for short-term loans following the US Federal Reserve’s pronouncement that it will likely begin reducing its monthly bond purchases.

The bellwether 91-day T-bill rate, which banks use in pricing their loans, rose to 1.095 percent from 1.085 percent previously.

The Treasury sold the P5 billion worth of three-month debt papers on offer. Investors however were asking for P11.37 billion more of the government security or IOU.

Yield on the 364-day T-bill also inched up to 1.587 percent from the previous 1.584 percent as investors were willing to buy P16.86 billion of the one-year IOUs. The government only accepted P5 billion.

Interest rates on the 182-day T-bill, meanwhile, was unchanged at 1.391 percent with total tenders for the six-month paper amounting to P18.36 billion, of which the government accepted P5 million as planned.

Earlier, US Fed Chair Jerome Powell said they would soon begin the process of reducing the central bank’s $120 billion in monthly bond purchases should one more “decent” jobs report is seen.

De Leon said this unwinding of accommodative monetary stance pressured investors to ask for higher interest rates.