By Karl Angelo N. Vidal, Reporter
THE GOVERNMENT rejected all bids for the reissued seven-year Treasury bonds (T-bonds) it offered on Tuesday as bids came in higher than expected amid increased demand due to maturing state debt.
The Treasury did not accept any tenders for its P15-billion offer of reissued seven-year bonds with a remaining life of six years and five months yesterday.
This, even as total offers placed by banks and other financial institutions amounted to P24.456 billion, well above the amount the Treasury intended to borrow.
Had the government proceeded with a full award, the debt papers, which carry a 5.75% coupon, could have fetched an average rate of 8.284%, 119.9 basis points higher than the 7.085% average fetched when the papers were last sold in September.
At the secondary market, prior to the auction, the debt notes were quoted at 7.5546%.
At the close of the trading yesterday, the seven-year securities rallied to fetch a lower yield of 7.9482%.
Deputy Treasurer Erwin D. Sta. Ana said the government opted to reject all bids for the seven-year papers as offers from investors were “unreasonably” high.
“We looked at the last time we issued this security as well as the [five-year bonds]. There is really a huge pickup from the last auction rates, so the committee decided to reject at this time,” Mr. Sta. Ana told reporters following the auction on Tuesday.
He added that demand from banks and other financial institutions rose as the Treasury is paying P11 billion worth of maturing debt this week, adding liquidity to the market.
“Possible, dealers are actually looking for ways to invest those P11 billion.”
Mr. Sta. Ana noted that going back to government debt “is already an interesting proposition” for investors given the rising interest rates.
Meanwhile, a bond trader said offers placed by investors were higher than the expected 8-8.25% range.
“Market players are playing defensive amid lack of firm leads in the market,” the trader said in a phone interview.
“Investors prefer placing their funds in the shorter-tenor [securities] such as the three-year [bonds] and Treasury bills (T-bills) rather than the longer-term papers such as this one.”
To compensate for the previous rejections the Treasury has made, the official said the Bureau of the Treasury is looking at other fund-raising options such as offshore offerings, retail bonds, as well as floating-rate notes.
A floating-rate note, or floater, is a debt instrument that carries a varying interest rate, depending on a benchmark. However, floaters yield lower returns compared with fixed-rate papers of the same maturity date.
“The floaters would really benefit the banks more because that would actually give them some protection with respect to rises and changes in interest rates because the benchmark has a reset so that would serve as a protection for them,” Mr. Sta. Ana explained.
The Treasury is raising P270 billion from the domestic market this quarter through auctions of securities, offering P180 billion in T-bills and another P90 billion in T-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.

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