THE GOVERNMENT once again rejected all bids for the reissued five-year Treasury bonds (T-bond) on offer at its auction yesterday as it saw weaker demand amid tight liquidity in the market.

The Bureau of the Treasury did not award its offer of five-year papers, which was met with demand worth P10.054 billion, just over half of the P20 billion it planned to borrow.

Had the government proceeded with an award, the five-year bonds, which have a remaining life of four years and one month, could have fetched an average rate of 4.681%, well above its 4% coupon rate and also higher than the 4.55% average quoted when these papers were last sold.

Still, yesterday’s average would have been lower than the 4.7099% yield on the five-year papers in the secondary market before the auction, as well as the tenor’s 4.7174% rate at the closing of the fixed-income exchange.

The four-year papers — the bonds’ closest liquid tenor — were also quoted at a higher rate of 4.8393% at noon and at the market’s close.

Yesterday’s auction — the last for this year — was the fourth consecutive time the Treasury totally rejected banks’ bids following its successful five-year retail Treasury bonds (RTB) offering last month. The government raised P255.4 billion from the RTBs, which carry a 4.625% coupon rate.

After the auction, National Treasurer Rosalia V. De Leon told reporters that the government’s rejection of bids was due to “tight liquidity” following the successful retail bond offering.

“You see the rates and again, I guess it’s tight liquidity because we’ve seen undersubscription. The banks also think [that] we are not in need of the cash after the good harvest brought by the RTB,” Ms. De Leon said, also citing the “wide pickup in the repo (repurchase) market” as one the factors.

Ms. De Leon added that demand thinned as lenders were “not in the mood” to offer as the year ends.

“[Maybe, some banks] are not in the mood anymore because we’re already closing the books and they feel [that] even if they submit a very high offer, obviously we’re in a good position to reject,” she said.

The National Treasurer said the US Federal Reserve’s interest rate hike last week also caused banks to ask for higher yields.

“Because the Fed is looking at three to four rate hikes [next year], I think the market is still looking at increasing [their rates],” she noted when asked for an outlook.

Meanwhile, traders interviewed said they expected the Treasury to reject the bids because the rates was “too high.”

A trader said: “[I] didn’t expect them to sell this bond at a higher rate since they’re already done for the year [due to the RTB].”

As for the government’s borrowing plan for next year, Ms. De Leon said this will be released before 2017 ends.

“Our commitment is we’ll issue the issuance program for the next six months… We’re building on the six tenors, and then every quarter, we’ll release the volume,” Ms. De Leon said.

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.

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

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