THE GOVERNMENT did not award the 20-year Treasury bonds (T-bonds) it offered on Tuesday as investors wanted higher returns, pushing up rates.

The Bureau of the Treasury (BTr) rejected tenders worth P46.921 billion for the reissued 20-year T-bonds yesterday even as this exceeded the government’s plan to raise P30 billion from the offering.

The bonds have a remaining life of 12 years and seven months and carry a coupon rate of 3.635%.

Had the BTr made a full P30-billion award, the average rate of the notes would have been quoted at 3.501%, lower than the 5.341% fetched in the Nov. 25 auction, which was when the 20-year tenor was last offered.

Yesterday’s auction marked the first time in five months of weekly auctions that the BTr did not accept any tenders.

The last time it rejected all bids was in late March when rates shot up because investors opted to hold on to cash as the country was placed under one of the world’s strictest lockdowns to curb the spread of the coronavirus.

Yields on government securities have been on a downtrend since then as investors flocked to safe-haven assets amid uncertainties due to the pandemic.

National Treasurer Rosalia V. de Leon said they did not award any 20-year bonds yesterday after market participants asked for higher rates following the Bangko Sentral ng Pilipinas’ (BSP) move to pause its monetary easing cycle.

“Bids [were] way too high versus valuation for the tenor. [Investors were] asking for higher return for additional duration as [the] BSP takes [a] pause in [its] accommodative stance,” Ms. De Leon told reporters via Viber following the auction.

She said the Treasury expected the bonds to be quoted a yield below three percent.

A bond trader said the average yield that would have been fetched by the reissued papers had the Treasury made a full award was higher compared to “the nearest liquid benchmark, FXTN-20-17, which is trading only at 2.7-2.75%.”

A second bond trader also attributed the uptick in rates to the BSP’s decision to stand pat on its current policy settings.

The BSP’s Monetary Board last week kept benchmark interest rates steady amid a benign inflation outlook and signs of economic recovery. Rates on the BSP’s overnight reverse repurchase, lending and deposit facilities are currently at record lows of 2.25%, 2.75% and 1.75%, respectively.

Despite yesterday’s auction result, Ms. De Leon said the Treasury expects rates to remain steady on the back of ample liquidity in the market and investors’ preference for safe-haven assets.

The second bond trader meanwhile said the rates will continue to move sideways as headline inflation is expected to remain within the 2-4% target this year.

“Moving forward, inflation was up last time at 2.7% (July) but then again, it is still within the target so there’s no reason for yields to go up so in the meantime. [We see] sideways [movement for now],” the trader said.

The BTr raised P143.033 billion from the local market through its weekly auctions of government securities this month, lower than its original plan to borrow P170 billion.

Broken down, it borrowed P113.033 billion via Treasury bills (T-bills) and P30 billion from T-bonds versus the programmed P110 billion and P60 billion, respectively.

The Treasury also raised a record P516.3 billion from its offer of five-year retail Treasury bonds earlier this month. The bonds fetched a coupon of 2.625% amid strong liquidity in the market.

The government is looking to borrow around P3 trillion this year from local and foreign lenders to plug its budget deficit seen to hit 9.6% of gross domestic product. — B.M. Laforga