By MAX ESTAYO

The Bureau of Treasury yesterday rejected all bids for treasury bills as lenders tried to jack up interest rates pricing in political uncertainty and the belief that the central bank has finished slashing policy rates.

The Bureau of Treasury said it may altogether scrap the auction for bills next quarter and instead issue more bonds.

The average rate for 91-day, which banks use in pricing their loans, would have gone up the most by 95.7 basis points to 4.63 percent from 3.673 percent when it was last sold on Jan. 21 had the auction committed accepted the bids.

Bids reached P510 million, a third of the P1.5 billion that the government had intended to raise this week.

The yield for the 182-day would have also climbed, by 51.9 basis points to 5.194 percent from 4.675 percent during the last sale on Jan. 21.

Banks were also unwilling to buy the debt, with total bids reaching P1.81 billion, compared to the offer of P2 billion.

Meanwhile, banks submitted an average rate of 5.699 percent for 364-day, 38.6 basis points over 5.313 percent during the Feb. 4 auction.

Banks tendered a total P3.11 billion for the paper, just slightly above the offer of P3 billion.

Deputy treasurer Eduardo Mendiola said the bids were "unreasonable", considering that the government is very liquid and does not need cash.

Mendiola avoided reference to the political turbulence generated by the ongoing Senate inquiry on the botched broadband project.

A key witness to the corruption-riddled project continued his testimony yesterday, uncovering more sordid details on the participation of government officials in the cancelled project.

The government also last week junked bids for 4-year treasury bonds where it had intended to raise P7.5 billion as investors, rattled by the "political noise," demanded premium for their securities investments.

"The volumes are low, the interest is lackluster. We might review the policy of issuing the T-bills. There’s no use of doing the issue if the market doesn’t want it," Mendiola said.

"I think what is happening is demand is no longer there for short term (papers) because the long-term are very liquid."

"The market is pricing in the view that the central bank may not be cutting rates anymore," he said.

Mendiola said he couldn’t see any link between the weak demand and a brewing corruption scandal that has revived calls for the resignation of President Gloria Macapagal Arroyo.

The last successful auction for the two short-term tenures was on Jan. 21.

The central bank will meet on March 13 to review its key policy rates after slashing the overnight borrowing rate by a total of 250 basis points since July 2007.

The monetary authority has signaled its easing stance could be halted next month as price pressures are set to peak in the second quarter and strong foreign exchange inflows risk stoking inflation.

The government has set a first quarter borrowing program totaling P 84 billion from the local market, one third higher than a year ago.

The Treasury has yet to announce its domestic borrowing program for the second quarter.