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Polytechnic University of the Philippines College of Economics, Finance and Politics Department of Economics

Treasury Bill Rates in the Philippines (2001-2010)

Balakit, Rose Ann C. Oracion, Imee Grace J.

Submitted to: Prof Norie Lolong

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INTRODUCTION

Structure and Rationale of the Study

In light of the various capital crises in the Philippines for the past few years, efficient Philippine Money Market Instruments help to mobilize financing for growth and development.

One of the Money Market instrument issued in the Philippines is the Treasury Bill. It is a short term instrument that matures in a year or less than that. There are three tenors of Treasury Bill – 91day, 182day, and 364 day. The number of days is based on the universal practice around the world of ensuring that the bills mature on a business day. Treasury Bills which mature in less than 91-days are called Cash Management Bills. (Bureau of the treasury)

The study aims to know how treasury bills are traded in the market and also to know the trend of interest rates in 91day, 182day, and 364day Treasury Bills. The data and analysis of this study will help the people to easily see the trend of interest rates in Treasury Bills for the past ten years.

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government securities are practically free from default. 3 . What is the trend of interest rate in: 2.1) 91-day T-bill 2.3) 364-day T-bill? Scope and Limitations of the Study The study is limited only to Treasury Bills Rates of the three tenors: (1) 91 day (2) 182-day (3) 364-day.2010. Therefore. from the year 2001. REVIEW OF RELATED STUDY Government Securities Government Securities are unconditional obligations of the sovereign state. It is backed by the full taxing power of the sovereignty.Statement of the Problem The study aimed to answer the following questions: 1.2) 182-day T-bill and 2. How are Treasury Bills traded in the market? 2.

treasury.gov.ph) Treasury Bills Treasury bills are government securities which mature in less than a year.gov.treasury. Government securities are no longer certificated. they are known as "scripless". There are three tenors of Treasury Bills: (1) 91 day (2) 182-day (3) 364-day Bills. Treasury Bills which mature in less than 91-days are called Cash Management Bills. (http://www. which is the discount. Local Governments and government-owned or controlled corporations may float securities but these are not labeled as Treasuries. or by their price based on 100 points per unit. so-called because it is the Bureau of the Treasury which originates their sale to the investing public through a network of licensed dealers. China and Korea. No other tax is imposed on the secondary market buyer. Canada. just like in USA.The Philippine Government issues two kinds of government securities (GS): Treasury Bills and Treasury Bonds. Treasury bill originates their sale to the investing public through a network of licensed dealers. It is issued through a competitive bidding process at a discount from par.ph) 4 . the appreciation of the bond provides the return to the holder. (http://www. GS discount or coupons are subject to twenty percent final income tax which is withheld upon floatation of Treasury Bills or upon payment of the coupon for Treasury Bonds. Treasury Bills are quoted either by their yield rate. The numbers of days are based on the universal practice around the world of ensuring that the bills mature on a business day. which means that rather than paying fixed interest payments like conventional bonds. Government agencies.

it is the cost of borrowing money (borrowing rate).treasury. They are the price paid for the use of money for a period of time and are expressed as a percentage of the total outstanding balance that is either fixed or variable. Bangko Sentral ng Pilipinas or Insurance Commission) which has met the (a) P100 M unimpaired capital and 5 . from a lender’s point of view.ph) Interest rates are prices. it is the fee charged for lending money (lending rate). Government Securities Eligible Dealer (GSED) Government Securities Eligible Dealer (GSED) is a SEC-licensed securities dealer belonging to a service industry supervised/regulated by Government (SEC. from the point of view of a borrower.ph) Interest Rate Interest Rates is the cost of borrowing money or the amount paid for lending money expressed as a percentage of the principal.gov. It is the discount earned on Treasury Bills or the coupon paid to the holder of Treasury Bonds.gov. Conventionally. and second. There are two ways by which interest rates can be defined: first. Both the discount and the coupon are expressed as a percentage of the value of the GS on a per annum basis. (http://www. the yield on longer dated GS are higher than the yields of shorter-dated GS. (http://www.Yield Yield is the increment or interest on an investment in GS.bsp.

treasury. The 6 . (http://www. A List of GSEDs are included in this Primer for ease of investors who wish to buy government securities. and (c) has the infrastructure for an electronic interface with the Automated Debt Auction Processing System (ADAPS) and the official Registry of Scripless Securities (RoSS) both of the Bureau of the Treasury (BTr) using Bridge Information Systems (BIS).treasury.Under Executive Order No. performs credit operations. (Bureau of the Treasury Mandate. it allows the market to set its own rates. exercises supervision over banking institutions. operates the interbank real-time gross settlement system.ph)) The Bangko Sentral ng Pilipinas The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines which maintains the country’s international reserves. 449.ph) Bureau of the Treasury Bureau of the Treasury issue. service. redeems government securities for the account of National Government as may be authorized by the President pursuant to law and to administer the Securities Stabilization Fund by purchase and sale in the open market of government bills and bonds to increase the liquidity and stabilize the value of said securities in order to promote private investment in government securities. engages in open market operations.surplus account. and acknowledged by the BTr as eligible to participate in the primary auction of government securities. acts as a banker of the government.gov. (http://www. The BSP implements policy on interest rates that followed a market-oriented interest rate policy. and has the sole power and authority to issue currency. (b) the statutory ratios prescribed for the industry. That is.gov.

finance companies and similar credit institutions. Descriptive research involves gathering data that describe events and then organizes. Under the Usury Law (Act No. pawnshops. depicts.ph) II. tabulates. for the purpose of stabilizing the price level. The BSP can effectively set interest rates. 2655. 1984 Research Instrument 7 . and to change such rates whenever warranted by prevailing economic conditions. as amended by P.D. This method enables the researchers to interpret the theoretical meaning of the findings for further studies. 116). tabulates.gov. and describes the data collection (Glass & Hopkins. (http://www. depicts.Monetary Board only sets rates for the BSP’s overnight borrowing and lending facility to influence the timing. 1984). METHODOLOGY Research Design The researcher used descriptive research method which is designed to gather information about present existing conditions needed in the chosen field of study. the Monetary Board can prescribe the maximum interest rates for loans made by banks. and describes the data collection (Glass & Hopkins. Descriptive research involves gathering data that describe events and then organizes.bsp. Descriptive research involves collections of quantitative information that can be tabulated along a continuum in numerical form or it can describe categories of information in a situation. cost and availability of money and credit.

8 .M. The data gathered from government agencies websites and other related materials providing information about the research made this study possible III. Within seconds the bids are arrayed by the System in the terminals of the BTr.Information from different books as well to some informative articles and some reading materials were used to obtain data for the study. Data Presentation and Analysis Automated Debt Auction Processing System (ADAPS) is an electronic mode by which the National Government sells government securities to a network of GSEDs which are linked to the Bureau of the Treasury through Bridge Information System every Monday for Treasury Bills whereby Government Securities Eligible Dealer (GSED) tender their bids (both competitive and non-competitive) by keying-in the amount (minimum of P10. Data Collection Prior to data gathering. After the cut-off time of 1:00 P. the array is viewed by the Auction Committee which then decides on the award. the researchers get information from Bureau of the Treasury website and to the different government agencies website that provide information in the study.0 M) using a BIS terminal in the GSED office.0 M) and yield of their choice (for a maximum of seven competitive bids and one non-competitive bid per tenor for any amount above P10. The award is keyed-back to the respective terminal of GSEDs. To compile data needed for this research. getting important details from different books and articles about the research was done.

. 141-95. and consecutive issuance of Treasury Bills of the same maturity shall constitute a Series. Over-the-Counter (OTC) is another mode of originating GS for specific investors. According to the Department Order No. e. Upon award of 9 . The applicable yield rates for Treasury Bills issued to GOCCs/LGUs/TEIs shall be based on the rate of the immediately preceding Treasury Bill auction. This is also known as origination of GS. the Government Owned or Controlled Corporations (GOCC). The Over-the-Counter is open every day. etc. Registry of Scripless Securities (RoSS) is the official Registry of absolute ownership. For GOCCs.Two days after the auction. Section 4. All Treasury Bills bearing the same date of issue and the same date of maturity shall constitute one Issue. for LGUs. the government securities are credited to the Securities Principal Account of the GSED in the Registry of Scripless Securities (RoSS) and the Demand Deposit Account of the GSED at Bangko Sentral ng Pilipinas is debited in favor of the Treasurer of the Philippines for the cost of the government securities awarded to the GSED concerned. They may be offered for sale through competitive or non-competitive auction or any other method as determined appropriate by the Bureau of the Treasury. Treasury Bills shall be issued on a discount basis and payable on maturity of not more than one (1) year at face amount. the rate shall be the lowest accepted yield rate. the weighted average yield rate and for TEIs. pension funds. SSS.g. It is non-competitive.. the yield shall be 90% of the weighted average yield rate. GSIS. legal or beneficial titles or interest in GS (Treasury Bills and Treasury Bonds). This completes the trade in the primary market (from the issuer the National Government to the licensed dealers or GSEDs). the Local Government Units (LGU) and the Tax Exempt Institutions (TEI). namely.

On issue date the Principal Securities Account of GSED are credited of the winning bids. The system then sends an electronic settlement file to BSP containing the amount to be debited and credited to the Regular Demand Deposit Account (RDDA) of the buyer and seller. Securities and cash settlement of GS transaction to the secondary market is done via DvP on a Real Time Gross trade for trade basis. the BSP Philippine Payment and Settlement System (PhilPASS) will send back a file message that settlement were done and the RoSS system will now transfer the earmark securities from the seller securities account to the buyer securities account. A flow chart is provided to see how the Government securities such as Treasury Bill is traded in the market.m. the securities award are electronically downloaded to the RoSS system. to 1:30 p. Cut-off time for peso funding in the Philippine Payment and Settlement System (PhilPASS) is until 2:00 p. Once settlement were processed.GS to a GSEDs at the auction. 10 .m. All transaction which have been unsettled after the 2:00 p. cut-off time will be declared failed transaction and the earmarking on the company securities at RoSS will be lifted. The GS trades are entered by both parties in their respective trading terminals using their confidential identification and password and to activate the system and authorize every transfer instruction between 9:30 a.m.m. The RoSS system checks the securities in the seller’s securities account and earmark these for transfer. A Posted message will then send back by RoSS to the system provided.

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Treasury Bill Rates in the Philippines for the Past Ten Years TREASURY BILL RATES for the period indicated rates in percent 91-Days 182-Days 364-Days All Maturities 2001 January February March 1st Quarter April May June 2nd Quarter July August September 3 Quarter October November December 4th Quarter rd 9.773 9.466 11.021 11. N.174 11.360 8.441 11.481 7.407 4.I.888 11.860 12.952 11.882 9.228 10.192 11.830 11.661 9.371 7.458 11.797 10.556 11.749 10.635 12.864 7.910 11.001 5.942 10.697 10.853 11.073 5.460 11.773 10.384 5.854 2002 January February March 1st Quarter April May June 5.185 6.866 11.894 10.856 6.365 10.038 8.002 9.736 6.370 10.459 6.796 10.051 9.880 10.881 10.054 9.545 8.683 12.404 12.692 4.031 11.613 9.570 9.884 7.505 9.The data gathered were analyzed using tables and line graphs that show the Treasury bill rates.265 11.704 6.184 12.427 11.I.403 10.793 12 .790 10.667 11.732 12.827 8.716 5.307 11.617 7.508 9.297 9.490 8. Table1.822 9.788 4. 9.900 11.795 11.778 7.318 12.441 11.215 N.218 4.878 9.478 7.898 9.630 12.261 4.787 11.054 12.215 6.981 13.757 5.756 9.233 5.734 11.87 2 11.264 12.433 7.

901 6.386 7.915 8.257 5.964 7.610 7.856 6.256 6.104 2003 January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 2004 January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 6.225 5.I.757 6.459 6.228 9.346 6. 8.443 7.516 9.356 6.412 6.874 7.291 6.922 5.187 6.804 8.252 5.243 5.I.327 8.585 8.440 7.778 6.329 6.367 7.995 5.128 8.384 N.609 8.551 9.489 7.511 6.838 6.927 6.672 6.612 7.167 5.929 7.841 8.128 4.349 6.511 8.259 5.148 8.410 7.908 8.666 5.127 7.259 8.367 6.196 8.413 5.475 8.304 6.905 7.213 5.140 7.556 7.790 7.028 5.321 7.416 9.500 8.439 5.257 5.910 7.394 7.872 7.851 9.716 5.740 7.098 6.326 7.866 7.046 6.325 5.869 6.928 5.315 6.897 8.732 13 .527 6.009 7.995 6.084 7.100 6. 5.600 8.115 7.364 8.035 7.016 9.662 6.025 N.076 5.551 N.660 8.000 7.010 5.280 8.2nd Quarter July August September 3rd Quarter October November 4th Quarter 4.654 6.915 9.864 6.479 6.534 6.621 5.472 8.819 6.762 9.510 7.616 6. 7.315 9.655 8.826 7.929 7.362 5.186 5.725 8.953 6.538 8.574 4.197 8.453 7.061 6.299 7.184 7.901 7.027 7.074 8.244 5.107 6.846 6.770 4.572 5.I.434 7.896 8.382 8.258 5.443 8.151 8.181 5.582 6.282 5.908 9.199 7.600 6.151 7.631 8.614 7.203 6.340 6.218 8.

690 N.878 6.639 4. 5.I.369 6.219 7.429 5.130 5.486 7.258 3.965 5.892 6.575 8.917 4.736 4.542 N.958 3.990 6.403 5.351 4.I.724 7.609 4.643 7.767 6.568 7.613 4.837 6.935 7.462 3.859 5.265 N.391 6.295 5.531 7.809 7. 5.752 6.859 7.558 7.786 3.199 6.631 8.196 6.781 5.607 7.353 4.671 8.444 5.838 7.607 5. 4.184 3.103 5.272 6.806 4.634 7.483 2. 9.450 8.955 8.847 7.611 5.615 7.407 7.358 7.837 N.185 6.511 8.031 2.174 5.031 4.873 8.001 8.438 5.618 5.244 3.153 4.063 7.526 5.955 7.840 6.161 5.004 6.061 6.080 6.410 7.309 6.174 5.264 8.804 6.457 7.389 5.612 14 .912 5.149 6. 6.254 N.406 3.782 4.655 6.830 7.688 3.940 7.717 5.909 N.482 7.683 9.683 5.797 5.837 8.936 2.149 2.428 3.2005 January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 2006 January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 2007 January February March 1st Quarter April May June 2nd Quarter July August September 6.289 7.628 6.644 5.I.815 7.465 5.538 3.629 6.656 8.156 4.528 8.713 4. 5.181 6.425 5.210 4.500 5.551 3.989 7.257 6.973 6.481 7.465 5.921 3.I.682 4.071 6.764 7.973 6.379 3. 5.340 8.I.579 3.735 8.972 6.I.473 6.181 5.087 7.102 3.429 7.424 5.607 5.733 6.975 8.917 7.972 3.651 7.I.221 6.779 6.265 5.165 N.419 7.950 7.988 7.076 5.719 3.582 7.893 8.991 3.469 4.558 4.973 3.998 5.183 3.401 5.

843 4.758 3.747 6.492 4.689 3. N.6.480 4.385 4.167 4.706 5.065 4.I.789 6.221 4.567 5.7 3.611 4.464 4. N.034 4.776 4.850 3.121 3.I.411 6.628 5.675 6. N.665 4.699 N.745 6.516 4.601 4.698 4.382 4.408 4.492 5.029 5.600 6. 6.611 6.673 4.906 3.I.589 6.067 4.417 4.342 4.I.905 3.268 4. N.355 5.I.329 4.647 N.I.992 4.122 4.616 4. 4.476 6. 4.247 4.539 4.407 4.480 6.620 6.287 4. 6.121 4.332 4.I.555 4.903 4.5 5.426 5.I.I.937 6.670 5.193 4. 4.257 4.389 3.880 3.129 3.266 5. 5.423 6.799 4.208 4.670 N.849 6.728 3.625 4.600 6.839 6.437 4.747 6.320 4.574 4.715 6.702 4.907 4.812 4.141 4.186 4. N.483 N.230 4.528 4.I.677 4.928 3.107 3.845 6. 5.I.143 4.294 4.478 4.739 6.502 7.673 N.661 4.293 4.3rd Quarter October November December 4th Quarter 2008 January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 2009 January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 2010 January February March 1st Quarter April 3.384 5.122 4.398 15 .161 4.173 3.884 6.266 4. 6.I.253 4.739 4.873 3.273 4.764 4.965 4.072 5.884 6.I.625 4.734 4.950 4.666 4.456 4.591 5.488 4.699 N.499 N.I.227 4.114 4.537 4.948 3.937 6.931 4.312 6.479 4. 3. N.031 5.I N.395 4.551 4.845 6.809 .004 6.653 4.263 4.530 5.610 4.214 4. N.680 3.512 4.

738 2.142 4.563 2.No Issuance Date Last Updated: 01 Sep 2011 Table 1 shows the interest rates on Treasury Bills during 2001 up to 2010. 364-days Treasury Bill Rates.404 1.068 2.407 2.923 3.I.475 4. .May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter 2011 January February March 1st Quarter April May June 2nd Quarter July August 3.906 4.660 4.485 4.336 1.235 4. 2.317 4.596 2.939 3.096 2.275 3.155 4. 182-days.283 4.083 2.962 3.456 3. A line graph is also provided to easily see the 91-days.539 4.072 4.I.332 4.154 4.167 2.065 2.626 4.213 0.390 2.398 4.095 4.871 3.135 4.076 1.230 4.090 4.684 1.124 2.093 3.520 4.770 2.423 1.327 4.278 4.545 4.167 0.440 N.455 2.236 1.052 0.700 1.951 3.967 3.492 4. 16 .309 4.882 4.852 3.790 1.874 1.950 2.332 4.064 1.772 2.963 3.382 3.799 Source of Basic Data: Bureau of the Treasury N.655 1.596 4.492 4.449 4.444 1.971 3.

991%. The inflation rate during the quarter was well below the 6. the average 91-day for the year was at 9. stable interest rate. reas t years(2001-20 10) 14 12 10 8 6 91-Days 182-Days 364-Days 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Yea r ) % ( a s r e t n i 4 2 0 Still consistent with the thrust of the government to have a low.913%. Also. The interest rates for the 182-day and 364-day Treasury Bills were 11.9 percent in the same quarter a year ago. light and water (FLW) as well as services.142% and 11. For instance. respectively.ph) During the fourth quarter of 2001.F ure1 T uryBill ratesin thePhilippinesfor thepas ten ig . the BTr started conducting quarterly consultations with Government Securities Eligible Dealers during the year. The decrease in FLW inflation was due to the lower cost of imported crude oil. and from 5. the quarterly borrowing programs are regularly announced. This was due primarily to lower inflation for major food items and nonfood items such as fuel. More transparency has been introduced in the borrowing program. Treasury. the inflation rate decelerated to 4.0 percent 17 . the Bureau has been a contributory factor to the decline. Although interest rate policy is within the purview of the Bangko Sentral ng Pilipinas. (2001 Annual Report.gov.7 percent from 6.749%.4 percent in the previous quarter.0-7. lower than the projected rate of 12% and the previous year’s average rate of 9.

Tbill rates began to rise on account of the uncertainty brought about by the local elections. However. 182-day and 364-day instruments. average domestic interest rates eased to 3. In December. reflecting decelerating inflation. average lending rates mirrored the movement in the yields of government securities. lower than the 6.7 percent and 8. The bellwether 91-day T-bill rate averaged 5. which suggests an easing in monetary conditions and relatively well-contained inflation expectations. following the Government’s announcement of a record-budget surplus in November.1 percent and 7.5 percent for the 91-day.0 percent. from 7. Rates continued to increase gradually until September due to worries over the impact of the US subprime mortgage market troubles on local markets. (Report on Economic and Financial Developments.government target for the whole year of 2001. respectively. 18 . beginning May.7 percent in 2005. 4. despite continued benign inflation. These rates remain low compared to year-ago levels but are higher relative to the rates posted at the start of 2007.4 percent average in the previous year. improving fiscal performance. In addition.7 percent. The decline in yields continued until it reached its lowest in 2002. 2001) T-bill rates have generally been declining since mid-1998.4 percent in 2006. The downtrend in T-bill rates continued until April 2007. respectively. Longer tenors of the 182-day and 364-day also settled lower at 6. and ample liquidity in the financial system. T-bill rates eased in 2005 and 2006. when rates began to inch up anew until 2004. This decline in interest rates was accompanied by a flattening of the yield curve.6 percent and 5.

and 2.40 percent for the 182-day tenor. due to the higher risk premium demanded by the market players in reaction to the global financial turmoil. 19 .36 across all maturities. In March 2011.26 percent for the 91-day. T-bill rates trekked a general uptrend to average 6. and 4. and 4.In 2008.49 percent for the 91-day. respectively. 1. For 2010. 182-day and 364-day instruments.08 percent for the 91-day. 6.59 percent for the 364-day instrument following the six cuts in the BSP’s key policy rates since December 2008.73 percent. average domestic interest rates significantly declined to 1.39 percent.97 percent. 3.19 percent for the benchmark 91-day T-bill. and in particular. and 364-day instruments.78 percent.08 percent. 182-day. leading to unchanged BSP policy rates since July 2009.19 percent and 6. T-bill rates declined relative to year-ago levels on the back of ample liquidity in the market and a benign inflation outlook. respectively. average domestic interest rates eased further to 3. 4. short-term interest rates trended generally downwards to average 4. The rise in the yields could be traced to higher inflation due mainly to rising commodity prices and later in the year. respectively. 5. 182-day and 364-day. In 2009.

82%. Lastly. Inherent to its fiscal agency function particularly on issuance of government securities. which requests to improve fiscal performance in the financial system. Conclusion Based on the data presented. 20 . The researchers also found out that the Treasury bill rates from the past ten years have been fluctuating due to some reasons such as decelerating inflation in 2005-2006. Bureau of the Treasury continued to be more transparent in the borrowing program and in conducting quarterly consultations with Government Securities Eligible Dealers. the researchers concluded for this study that the trends of interest rates give intuition to the public when is the right time to purchase Treasury Bills.IV. people can be assured that their money will be safe and available when their Tbills mature. 5. Through studying this. the Bureau played a vital role in maintaining the policy of a low.09% 364days. stable interest rate. people will be informed how Tbills are being traded in the market. The average rate of 91day Tbill for the past ten years is 4.74% in 182days and 6.

gov. “What are Treasury Bills.treasury.pdf Bureau of the treasury-2002 Annual Report http://www.about.Bibliography Arnadeo. Understanding the Economics of Money.htm Bureau of the treasury-2001 Annual Report http://www.gov.bsp.com/od/bondsfaq/f/Treasury_Bonds.ph/downloads/Publications/FAQs/intrates.gov. Banking and Financial Markets.ph/archives/annual%202002/cy2002annualrep. Kimberly.html Interest Rates http://www.pdf Government Securities http://www. Bonds?” http://useconomy.pdf 21 .ph/archives/annual%202001/2001annualreport.gov.treasury.ph/govsec/aboutsec.pdf Mishkin.treasury.Frederic S.gov. (2008).Pearson Education South Asia PTE Report on Economic and Financial Developments (Forth Quarter 2001) http://www.bsp. Notes.ph/downloads/Publications/2001/LTP4qtr_01.pdf? bcsi_scan_D4A612CF62FE9576=0&bcsi_scan_filename=2001annualreport.

nscb.Treasury Bill Rates http://www.asp 22 .gov.ph/stats/tbills.