THE GOVERNMENT rejected all bids for the reissued 10-year Treasury bonds (T-bonds) yesterday as inflation eased and with the Treasury still having a solid cash buffer.

The Bureau of the Treasury (BTr) yesterday refused to award the debt papers, which have a remaining life of six years and eight months, as bids received totalled just P4.39 billion, falling short of the planned P20-billion borrowing and with rates rising anew.

Submitted bids averaged 5.009%, 61.9 basis points higher than the 4.39% liquid benchmark, the Treasury said.

Prior to the auction, the 10-year papers were quoted at 5.6804% in the secondary market. The yield was unchanged at the session’s close.

Meanwhile, the seven-year papers yielded 5.3179% prior to and after the auction.

The T-bonds offered yesterday were originally issued on Aug. 20, 2014 with coupon rate of 4.125%.

“There’s no reason at all for the very big increase in the rates given expectations about [lower] inflation [since prior to the release, the] median inflation is [at] 3.2%,” National Treasurer Rosalia V. De Leon told reporters after the auction.

Headline inflation eased last month, data from the Philippine Statistics Authority showed, due to decreases in prices of food and beverages.

Inflation slowed to 3.3% in November from the 3.5% print logged the previous month, albeit faster then than the 2.5% rate recorded in the same month last year. This fell within the Bangko Sentral ng Pilipinas’ (BSP) estimate of 2.9-3.6%.

Last month’s inflation rate brought the year-to-date average to 3.2%, within the government’s 2-4% target band and matching the BSP’s full-year forecast.

“[A]t the same time the BSP also reduced the volume for the 28-day TDF (term deposit facility), [which is now at] P40 [billion],” Ms. De Leon added.

“I think they also knew [that] the Treasury were very much already on very solid financing ground because of the RTB (retail Treasury bonds),” the National Treasurer said.

On Monday, the Treasury said it raised P255.4 billion from its second offering of RTBs this year. It issued P125.4 billion worth of five-year papers during the Nov.20-27 offer period, in addition to the P130 billion it raised during the initial auction.

Meanwhile, traders noted that the auction gained little demand from the banks given that the ten-year papers were off-the-run.

“Well, [the rejection is] expected since [the issuance is] off-the-run — it’s not the benchmark one, so I guess [that’s why it received thin] demand,” the trader said.

Off-the-run securities are bonds that were issued before a newly-issued ones. These securities are less traded and carry slightly higher yields.

“Most funds were already used to fund the RTB that’s why there’s no much interest in the papers,” the trader added.

The government borrows from both local and external sources to tap market liquidity in order to finance its budget deficit capped at 3% of gross domestic product, or about P482.1 billion.

This year, the government has set a P727.64-billion borrowing plan, 80% of which or P582.11 billion will be sourced from local lenders through Treasury bills and T-bonds. The P145.53-billion balance, meanwhile, will be borrowed from external creditors. — K.A.N. Vidal

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