Government rejects bids by investors eyeing full gains from bonds


INVESTORS sought to acquire full gains—“arm and leg,” the National Treasurer said—from longer-tenor government-backed securities, reflecting concerns on wobbly inflation curves. But the Bureau of the Treasury (BTr) rejected submitted bids for reissued 10-year Treasury Bonds (T-bonds) as rates soared.

“Full rejection; submitted rates like an arm and a leg,” National Treasurer Rosalia V. De Leon told reporters.

De Leon said the rates shot up on lingering inflation concerns as well as anticipated action by the US Federal Reserve.

The auction attracted total bids of P34.1 billion.

If the Treasury fully awarded the tenor, bid rates would have averaged 4.883 percent, surging by a whopping 169.8-basis point (bps) from the previous auction rate of 3.185 percent.

This would have also been higher by 84.6 bps from 4.037 percent secondary-market benchmark rate for the security, based on the PHP Bloomberg Valuation Service (BVAL) reference rate. When compared to the BVAL rate for a 6-year tenor of 4.1688 percent, this would have also been up by 71.5 basis points.

With a remaining life of five years and six months, the tenor is set to mature on May 4, 2027.

While higher rates reflect investor confidence on economic recovery beyond the Duterte administration, these also mean investors expect rising inflation.

De Leon reminded investors on the statement by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno that elevated inflation is “transitory.”

She added that Diokno’s “statement that [it is] still early to lift rates should assure the market.”

But should elevated inflation persist, De Leon assured the public that the government has sufficient funds backing its debt papers.

“We have strong cash position supported by improving revenue collection and expected ODA [official development assistance] inflows,” she said.

Inflation eased to 4.8 percent in September, slightly lower than 4.9 percent in August. While it is within the range of BSP’s projection for the September inflation of 4.8 percent to 5.6 percent, this exceeded the government’s 2-to-4 percent target.

De Leon earlier said they expect investors would seek higher rates given that the BSP sees inflation this year averaging beyond its target at 4.4 percent.

The Treasury aims to raise P200 billion from the local debt market before the clock ticks to All Saints Day. It’s part of the Treasury’s role in helping the national government achieve its programmed borrowing for this year of P3.1-trillion. Much of that amount is being raised through domestic sources.

The government borrows to meet its spending requirements as well as to finance its budget deficit—when it’s spending more than it is earning.

As of end-August this year, the national government’s outstanding debt has hit a new record-high of P11.64 trillion, up by more than a fifth from P9.62 trillion a year ago.

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