Gov’t rejects all bids for 7-year bonds

THE GOVERNMENT rejected all bids for the reissued sevenyear Treasury bonds (T-bonds) it offered on Tuesday as investors demanded higher rates ahead of the August policy meeting of the central bank.

The Bureau of the Treasury (BTr) opted to reject all tenders for its P15-billion offer of reissued seven-year bonds yesterday as bids put forward by banks reached just P13.97 billion, falling short of the amount the Treasury intended to borrow.

Had the BTr decided to accept all bids, the papers, which carry a 5.75% coupon rate, would have fetched an average rate of 6.621%, 64.5 basis points higher than the 5.976% tallied in the previous auction.

At the secondary market prior to the auction, the debt notes were quoted at 6.6921%.

At the close of the trading, the seven-year bonds fetched a lower yield of 6.2936%.

Following the auction, National Treasurer Rosalia V. De Leon said the rates offered by banks and other financial institutions were too high for the government.

“We opted to reject all bids because they are offering us outrageous pricing,” Ms. De Leon told reporters on Tuesday, noting that the auction was undersubscribed.

“And it’s undersubscribed [since investors only placed] P13 billion so most of those [were] really throwaway bids.”

She added that the market is waiting for the monetary policy meeting of the Bangko Sentral ng Pilipinas (BSP) before locking their funds in debt instruments.

BSP Governor Nestor A. Espenilla, Jr. said the central bank will review its forecast inflation path as this will shape the strength and timing of its next monetary policy response to temper inflation expectations.

Last month, the headline inflation picked up to a fresh five-year high of 5.2%.

The June inflation print accelerated from the 4.6% figure logged in May and exceeded estimates from the BSP and the Department of Finance.

The central bank has already raised the borrowing costs twice this year. Interest rates now stand at a 3-4% range.

“The market is waiting for the Aug. 9 policy meeting. And of course, everybody is also waiting for Federal Reserve ( Fed) Chairman Jerome Powell’s testimony [on Tuesday night] on what would be the move of the Fed,” Ms. De Leon added.

Mr. Powell will testify before the US Congress where he is expected to discuss the monetary policy of the Fed, with the market anticipating two more rate hikes amid a growing American economy.

Meanwhile, a bond trader said the rejection should help improve results at succeeding auctions.

“This should result in better auction next time as BTr seems to be ‘ reasonable’ and not too aggressive in awarding bids,” the trader said in a text message.

The Treasury is set to raise P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in Treasury bonds.

The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product.