Interest rates jump amid Ukraine crisis

Published February 28, 2022, 2:37 PM

by Chino S. Leyco

Local short-term interest rates accelerated following Russia’s full-scale invasion of neighboring Ukraine.

The Bureau of the Treasury rejected all tenors for Treasury Bills, or IOUs, after banks asked for much higher interest rates during the auction on Monday, Feb. 28.

The treasury bureau was facing trio of headwinds this week, such as rising consumer prices, higher interest rates in the US and the Ukraine crisis.

Had the government accepted banks’ bids, the benchmark 91-day T-bill rate, which banks use in pricing their loans, would have risen to 1.490 percent from 0.899 percent during the last successful auction of the three-month IOU on Feb. 21.

The government was set to sell P5 billion of the 91-day T-bills and banks were willing to buy P6.07 billion during last auction for February.

The six-month T-bill, meanwhile, average rate was 1.736 percent higher compared with 1.157 percent in the previous successful auction, while the one-year rate also grew to 1.865 percent from 1.568 percent previously.

The Treasury bureau was meant to auction P10 billion worth of the government paper for the two tenors.

According to sources, the Ukraine crisis aggravates inflationary pressures particularly oil transmission channels that put pressure on the local debt market.

The government “may have too see this scenario until there is clarity on how long the conflict in Ukraine lasts and until Fed meeting on March 16,” the source said. “Cash is king and the market is holding on cash.”

For March, the Treasury bureau raised its borrowing plan to P250 billion from P200 billion in the previous month despite headwinds.

Of that amount, T-bills were eyed to bring in P75 billion, while T-bonds were targeted to bring in P175 billion.

Based on the treasury data, P25 billion in T-bills will be sourced through the 91-day tenor, P25 billion through the 182-day tenor and P25 billion through the 364-day tenor.

Meanwhile, P70 billion in T-bonds will be generated through the seven-year tenor, P35 billion through the three-year tenor, P35 billion through the four-year tenor and another P35 billion through the 10-year tenor.