Gov’t rejects all bids for Treasury bonds

THE GOVERNMENT rejected all bids for the reissued five-year Treasury bonds (T-bonds) on offer at an auction on Tuesday despite heightened demand for the debt notes as banks sought higher yields amid a jittery market ahead of the anticipated Federal Reserve hike during its policy meeting next week.

The Bureau of the Treasury planned to raise as much as P25 billion in its last auction of Tbonds for this year. The reissued bonds have a remaining life of three years and eight months.

The T-bonds on offer will mature on Aug. 20, 2020 and were first issued last April 12 with a coupon rate of 3.375%.

This is the government’s first time to reject all bids for T-bonds on offer in over a year or since it declined to award 10-year bonds in an auction last Sept. 22, 2015.

Yesterday ’ s auction was oversubscribed as bids reached as much as P41.915 billion, with banks asking for yields as high as 4.358%, 38.1 basis points ( bps) higher than the Nov. 22 auction’s average rate of 3.977%. The average rate for the debt papers would have risen to 4.375% had the government made a full P25-billion award.

The government raised P26.128 billion in last month’s T- bond auction, slightly higher than the planned P25-billion borrowing.

Before yesterday’s auction, the yield on the five-year papers was at 4.8661%, while the four-year bond fetched a rate of 4.2202%.

At the secondary market’s close, the rate of the five-year papers was unchanged, while the four-year bond yielded 4.1315%.

“I think the market is still quite unsettled because of what is being anticipated for the Fed. So, given that these [rates] are quite far from our R1 and R2 levels, we discussed it quite extensively that it will be better to [push back to] the next auction a bond reissuance when the market has already absorbed and digested the Fed action happening next week,” National Treasurer Roberto B. Tan told reporters after the auction, referring to the noon and closing levels of bonds at the Philippine Dealing & Exchange Corp.

Mr. Tan noted that demand was present during the auction for the debt notes as some securities matured. “This week it was [at] P8 billion... That is why the volume is quite meaningful — as you know it is almost fully covered in terms of the tenders.”

“But the rates that are being bid out are quite reflective of market rates. So we decided to just reject. We would have wanted to accommodate, following the direction, but this might send the wrong signal,” he added.

Asked how the government will take into consideration the Fed’s action of hiking rates next month, Mr. Tan said, “By the second week next year... the uncertainty has been reduced drastically because market players don’t know how other players will be reacting towards whatever decision the fed makes this coming Fed meeting.”

Sought for comment, a trader said by phone yesterday:” We really have onshore concerns like normalization of inflation and potential widening of deficit. These two main things are at the forefront of investors’ mindset.”

The Philippine Statistics Authority reported yesterday that headline inflation jumped to 2.5% last month from the 2.3% logged in October and the 1.1% recorded in November 2015.

The preliminary result for November was higher than the 2.2% median estimate in a Businessworld poll of 16 economists conducted last week, and also surpassed the Bangko Sentral ng Pilipinas’ 1.6-2.4% forecast range for the month.

Inflation averaged 1.7% as of November, still lower than the government’s 2-4% target band and the central bank’s estimate of a 1.8% average for this year.

On the other hand, the government has capped this year’s budget deficit at 2.7% of gross domestic product or roughly P388.87 billion, well above the 2% cap set by the Aquino administration in crafting the P3.002 trillion national spending plan.

The Duterte government intends to spend aggressively on infrastructure and social services over the next six years, which in turn is seen to spur faster economic growth while reducing the number of poor families.

The government wanted to borrow up to P135 billion from the domestic market for this quarter — P60 billion worth of Treasury bills and P75 billion worth of T-bonds — but has made several partial awards in past auctions as rates sought by banks trended higher.