The average rate on 364-day treasury bill inched up by nearly a percentage point to 6.915 percent at yesterday’s auction, with the government allowing investors room to offset impact of inflation on earnings.

Still, the government tried to hold down the rate, selling just P1.97 billion out of its total P6-billion offer. Banks made tenders totalling P6.5 billion.

The benchmark paper, which banks use in pricing one-year debts, fetched an average of 5.993 percent during the last auction on April 14.

Finance undersecretary and acting national treasurer Roberto Tan said the auction committee accepted the rate because it was in line with the secondary market.

"Given that the volume is meaningful, we accepted it. We find there’s a real rising sentiment because of an environment that is hostile, the volatility and inflation," Tan said.

"It’s really within market expectations and levels. Fixing at the secondary market is 7.7 percent and the middle of the bid-offer is seven percent. So, it’s a reasonable rate and we don’t want to be left behind," he added.

Inflation picked up to its fastest pace in three years at 8.3 percent in April, stoked by continued increases in oil and food prices.

Meanwhile, the financial meltdown in the US has resulted in risk aversion to emerging markets, slowing the flow of funds and reducing the amount of liquidity in the system.

The Bureau of Treasury has intermittently rejected bids for treasury bills and bonds in previous auctions as banks demanded steep rates for their placements, apparently unwilling to park their funds at the low-yielding treasuries.

It rejected all bids for the one-year debt during the April 28 auction.

Tan said with the change in the government’s macroeconomic assumptions, the borrowing program may be adjusted.

But he said the government will still determine which of the component of the borrowing, local or commercial, will be adjusted or reduced.

"Once there are new macro assumptions, we’ll come up with a new borrowing program. Domestic rates have adjusted, that may also be considered," he said.

"But as of now, we’re still following the program, 70 percent local and 30 percent foreign," Tan added.