Gov’t rejects all tenders for T-bonds as rates rise

By Elijah Joseph C. Tubayan, Reporter
THE BUREAU of the Treasury (BTr) rejected all bids for the five-year bonds it offered on Tuesday as the market sought higher rates due to expectations of more policy adjustments from the local central bank.
The government did not accept any tenders for its P10-billion offer of reissued five-year Treasury bonds (T-bond) yesterday, even as bids by banks reached P14.91 billion, almost 1.5 times the amount on the auction block. The T-bonds have a remaining life of four years and eight months.
Had the papers been awarded fully, yields would have climbed to 5.98%, 38.8 basis points higher than the 5.592% logged in the previous auction.
At the secondary market prior to the auction, the debt notes were quoted at 6.1143%.
The five-year bonds were quoted at 5.500% at the close of yesterday’s trading.
“It’s so high, nakaka-choke. We’ve been doing partial awards, but only for this one it’s really not tolerable,” National Treasurer Rosalia V. De Leon told reporters after the auction.
“Even if we did some simulations, we still feel that even if you [do not reach] 6%, we’d only be getting very little out of the offer that we did today,” Ms. De Leon said on Tuesday.
Ms. De Leon said the Treasury still has room to decline some bids given the government’s strong revenue position.
“So we felt that it’s better to reject — after all, we still have a very strong cash buffer coming from the RTB (retail Treasury bonds) and also from the revenue collections,” she said.
The BTr reported on Monday that the government collected P81.5 billion in excess of the programmed revenues in the January-May period, after posting a 19% growth rate to P1.19 trillion in the first five months of the year from P996.5 billion in the same period in 2017.
“The deficit remains very manageable because of the high revenue collections. So that also gives us room to maneuver, not to really accede to the high rates or high yields we are seeing,” Ms. De Leon added.
The January-May fiscal deficit is now at P138.7 billion, 118% wider than the P63.6 billion recorded in the same period last year.
Asked how better revenues would affect the government’s borrowing program in the second half, Ms. De Leon said: “We have to calibrate that because we are also seeing good collections — that means we can afford also to reduce our borrowing program for the rest of the year…taking into consideration of course our rejections. So we have to see how much we can be able to offer during the third and fourth quarter.”
“Of course we have to see if our revenues will also be sustained,” the official added.
Sought for comment, a trader said the market is expecting another rate hike from the Bangko Sentral ng Pilipinas (BSP) — which would be the third for the year after 25-basis point increases done in May and June.
“Investors are eyeing more rate hikes from the central bank, and that the US Fed may also do so. So the BSP may follow,” the trader said in a phone interview yesterday.
Another trader concurred, saying the possibility of further rate hikes are backed up by the weaker peso and the decline seen in local stocks.
“The higher rates were the effect of the recent tariff wars in US and China. The dollar-peso is at the highs, and then stocks are in the bear market. So the tendency is that the interest rates will be higher,” the second trader said in a separate phone interview.
“As the sentiment is towards higher interest rates, the markets would want to push the market higher so the banks tended to go towards the 6% area. But that’s so abrupt,” said the trader.
The national government borrows from local and foreign sources to fund the increased spending and boost economic activity. It plans to borrow a total of P888.23 billion this year to plug its budget deficit that is capped at three percent of the country’s gross domestic product.