Treasury rejects all bids for 10-year debt papers

THE Bureau of the Treasury continued to reject bids for government securities it put on the auction bloc on Tuesday as banks sought higher returns ahead of expected rate hikes by the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.

In its first auction for the year, the government fully rejected bids for the fresh 10-year Treasury bonds (T-bond) it offered yesterday.

Tenders reached P18.7 billion, below the P20 billion the government wanted to borrow, with yields bid by banks averaging 5.461%, higher than the 4.915% average logged in the previous auction.

Some bidders even sought a return as high as 6.5%, matching the paper’s coupon rate.

Still, had the government accepted yesterday’s bids at the average rate, the yield would have been lower than the 5.9157% rate for the 10-year debt notes in the secondary market before the auction as well as the 5.9171% quoted at the close of trading.

Yesterday is the fifth consecutive auction that the government decided to reject all bids for its offers of Treasury bills and bonds, which started following its successful five-year retail Treasury bonds (RTB) offering in late November to December. The government raised P255.4 billion from the RTBs, which carry a 4.625% coupon rate.

National Treasurer Rosalia V. De Leon said investors are cautious amid a series of tightening moves expected this year not just from the Fed but also from the local central bank.

“It’s a long tenor so I guess the appetite is not really [strong]…given the expectations about rate hikes from the Fed, and eventually also from the BSP…if ever they [will be] pursued by the BSP,” Ms. De Leon said told reporters after the auction.

“There are also expectations about inflation because of the implementation of the tax reform [law],” she added, but noting that the actual rise in prices should be manageable.

Asked whether the succeeding auctions would see similar results, Ms. De Leon said: “Hopefully not because we’ve also been talking with our market makers, that they will also be providing bids. We’ve just had series of consultations and discussions with them, so once we have already put the market maker program formally in place, then we hope that there would be more reasonable, we’ll see the quotes.”

The government named 10 government securities eligible dealers last month as “market makers” that are expected to provide guidance for rate bids during auctions of government-issued papers by bidding within a certain range and volume.

But Ms. De Leon said the government still has the fiscal space to reject bids as the government is drawing liquidity from the RTBs.

Sought for comment, a bond trader said the market is expecting at least three rate hikes this year in the US amid a recovering economy.

The trader added that the BSP may follow with two increases within the year at about 25 basis points each.

“The tax reform program, it’s inflationary, but not really clear. It’s leaning towards the rate hikes, that’s the outlook right now but it might change,” the trader said in a phone interview.

Another trader said that because of these uncertainties here and abroad, the market is leaning towards shorter-dated debt papers.

“They are anticipating rate hikes this year. What’s happening right now, investors would rather put their money on the short end in the meantime,” the second trader said in a separate phone interview.

The government targets a P888.23 billion gross borrowing plan this year, 22.05% higher than last year.

Of this amount, P176.27 billion will be from external financing while P711.96 billion will be sourced locally. — E. J. C. Tubayan