By Karl Angelo N. Vidal, Reporter
THE GOVERNMENT rejected all bids for the 10-year Treasury bonds (T-bond) it offered yesterday as investors demanded higher rates ahead of the June inflation print.
The Bureau of the Treasury (BTr) opted to reject all tenders for its P15-billion offer of reissued 10-year debt on Tuesday, as tenders put forward by banks reached P14.84 billion, slightly below the amount the Treasury wanted to borrow.
Had the BTr decided to accept all bids, the papers, which have a remaining life of nine years and eight months, would have fetched an average rate of 6.842%, 49.2 basis points higher than the 6.35% tallied in the previous auction.
The 10-year papers carry a 6.25% coupon.
At the secondary market prior to the auction, the debt notes were quoted at 6.9304%.
The 10-year securities rallied in afternoon trading to close at 6.3437% as the session wrapped up.
After the auction, Deputy Treasurer Erwin D. Sta. Ana said the rates submitted by the banks were too high.
“The committee felt that the bids submitted are too high compared to where the market is in that sector of the curve,” Mr. Sta. Ana told reporters after yesterday’s auction.
“Also considering that the auction is undersubscribed, we felt that it was just better to reject all the bids.”
He added that investors are “focused on the shortest tenor.”
In the T-bills auction on Monday, the Treasury awarded P4 billion as planned in the 91-day tenor as bids for the papers surged to P14.438 billion, a huge chunk of the total P26.5 billion tendered by dealers that auction.
“It just goes to show that market appetite is on shorter-dated securities at this time.”
The Treasury also noted that market players continued to price in their inflation expectations.
“We’ve said that inflation could be a factor and all eyes are on the Thursday release of the inflation print,” Mr. Sta. Ana said.
A BusinessWorld poll among 12 analysts yielded a median inflation forecast of 4.7% for the month of June. If realized, the inflation print will accelerate from May’s 4.6% figure to a fresh five-year high.
Economists said inflation likely picked up from the previous month due to higher food and oil prices, although this was offset by easing electricity rates.
Meanwhile, a bond trader said the rejection of all bids was “a good thing” as rates would have gone up had the government accepted the tenders.
“It’s a good thing they rejected it. The rates would have risen to 6.842% if awarded,” the bond trader said in a text message. “This gives the market some relief as we wait for the [inflation print].”
The government is set to borrow 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.
Aside from this, plans for another dollar bond float as well as yen-denominated “samurai” papers are also being finalized.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit capped at 3% of the country’s gross domestic product.

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