High bids force full rejections in T-bond auction

Interest rates for reissued 10-year Treasury bonds (T-bonds) rose during Tuesday’s auction, prompting the Bureau of the Treasury (BTr) to reject all bids for the securities.

Submitted bids for the securities – with remaining life span of nine years and eight months – averaged 6.842 percent, 49.2 basis points higher than the previous rate of 6.35 percent last May 22.

This was also higher than the secondary market rates for the same securities, which settled at 6.4526 percent before the auction closed.

The auction only garnered P14.84 billion in bids, slightly lower than the P15 billion issue size.

Erwin Sta. Ana, national deputy treasurer, said the auction committee decided to reject bids as the submitted rates were higher than market rates.

“The committee felt that the bids are too high compared to where the market is in that sector of the curve. Had we fully awarded, rates would have gone up by about 50 basis points, and also considering that the auction is undersubscribed, we felt that it was just better to reject all the bids,” he said.

Sta. Ana said the result of the auction reflects the market’s continued preference for short term debt papers amid high inflationary expectations.

“We’ve said that inflation could be a factor, and all eyes are on the Thursday release of the inflation report,” he said.

According to the Bangko Sentral ng Pilipinas (BSP), inflation may have settled between 4.3 percent and 5.1 percent in June.

The Department of Finance (DOF) said inflation likely accelerated to 4.9 percent in June, higher than the previous month’s level of 4.6 percent.

Meanwhile, Sta. Ana said the BTr is targeting to file the requirements for the upcom- ing samurai bond (yen-denominated securities) issuance to the Kanto Local Finance Bureau of Japan’s Ministry of Finance by the end of the month.

The government is targeting to conduct the fund raising activity by the third quarter. The DOF earlier said part of the proceeds would be used to finance the government’s spending requirements for next year.