Gov’t rejects all bids for T-bonds

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Facade of the Bureau of Treasury at Intramuros, Manila on September 15, 2014. -- BW FILE PHOTO

THE GOVERNMENT rejected all bids for fresh seven-year Treasury bonds (T-bond) on offer yesterday as banks factored into their bids the faster January inflation print and the expected rate hike by the Bangko Sentral ng Pilipinas (BSP).

The Bureau of the Treasury did not award seven-year papers at its auction yesterday, which was met with demand worth P25.82 billion, slightly bigger than the P20 billion it wanted to borrow.

Had the government proceeded with a full award, the debt papers, which will mature on Feb. 8, 2025, could have fetched an average rate of 5.273% and a coupon rate of 5.5%, higher than the 4.39% average quoted when these papers were last sold.

Still, yesterday’s would have been lower than the 5.9432% yield on the seven-year papers in the secondary market before the auction.

At the close of trading, the seven-year T-bond closed flat.

After the auction, National Treasurer Rosalia V. De Leon told reporters that the government rejected the bids because they were unreasonable.

“We see that the rates are really beyond our estimates of the reasonable rates that we expected for this new seven-year issuance,” Ms. De Leon said.

She said banks likely factored into their bids the faster January inflation figure, as well as the expectations of a rate hike from BSP.

“It’s also a calibration of [the banks’] expectations on the Feb. 8 policy rate setting of the monetary board given the inflation of 4%,” she noted.

Data released yesterday by the Philippine Statistics Authority showed headline inflation last month accelerated to 4%, faster than the 3.3% reading in December and the 2.7% print posted in the comparable year-ago period.

The January print was also faster than the 3.5% consensus from 14 analysts in a BusinessWorld poll conducted late last week.

In a commentary sent to reporters, ING Bank N.V. senior economist Jose Mario I. Cuyegkeng said the faster-than-expected inflation last month makes it more likely that the BSP will tweak its interest rates in its meeting tomorrow.

“The likelihood of a tightening move at Thursday’s meeting has increased significantly,” Mr. Cuyegkeng said.

“We are now looking at advancing the timing of our rate hikes and are reviewing our two-rate hike forecast for 2018.”

Meanwhile, a trader shared the sentiments of Ms. De Leon, adding that market players “can’t help” but make unreasonable bids.

“[M]arket players can’t help it. We know that [the government] would like to issue more given the ‘Build Build Build’ program. And now you have higher inflation [and the] probability of BSP acting to address this concern,” the trader said in a mobile phone message. — Karl Angelo N. Vidal