Treasury to keep short-dated T-bills

The Bureau of the Treasury (BTr) will continue selling short-dated notes next year despite the central bank’s introduction of the interest rate corridor that comes with a new auction facility.

National Treasurer Roberto B. Tan shrugged off rumors that the government is planning to phaseout its three-month, six-month, and one-year Treasury bills (T-bills) starting secondquarter next year due to the interest rate corridor.

A government source said the treasury is seriously considering the plan because T-bills are no longer in line with the government’s liability management agenda.

“The government believes shortdated borrowing rates are effective as a monetary tool rather than for fiscal management. The government needs longer-dated bonds for infrastructure,” the source who declined to be named said.

The source added the treasury had raised the plan with the Bangko Sentral ng Pilipinas (BSP) several months ago after T-bills rates fell to almost zero, but the central bank “opposed it because they use T-bill rates as guide in monetary policy setting.”

“But now the BSP is about to introduce interest rate corridor, the treasury got the reason to seriously consider ending the issuance of T-bills,” the source disclosed.

Meanwhile, Tan denied the rumors, saying “we still see the need for shortdated notes.”

He, however, said there is a quarterly review of domestic borrowing plan, and the government can always change the mechanism depending on market forces and demand.

Last month, the BSP approved the implementation of the interest rate corridor system that comes with term deposit auction facility for short-term money market benchmarking.

BSP Governor Amando M. Tetangco Jr. explained the term deposit auction facility is intended for liquidity management, but it is also suitable for shorter maturities that could provide indicative short-term benchmark for the money market.

Tetangco added term deposit auction facility will allow BSP to siphon off any excess liquidity in the market.

But before the actual implementation, Tetangco said the central bank will hold a series of consultation with the market before the release of its mechanism.

Under the plan, the central bank’s overnight lending or repurchase window, currently at six percent, will serve as the ceiling and the special deposit account rate (SDA), currently at 2.5 percent, as the floor of the rate corridor.

“This will increase the potency of the BSP's policy rate in guiding market rates given the dynamics of inflation and market conditions in the economy,” Tetangco said.