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| While the five-year Treasury bond issue attracted more bids than the offer, the Bureau of the Treasury rejected all of them — totaling P41.92 billion — with rates going up by more than 38 basis points. Philstar | By Prinz Magtulis |
MANILA, Philippines — The government decided not to borrow anything during its last local fundraising activity for the year on Tuesday after rates spiked as expected.
While the five-year Treasury bond issue attracted more bids than the offer, the Bureau of the Treasury rejected all of them — totaling P41.92 billion — with rates going up by more than 38 basis points.
Specifically, investors were charging the bond, with a remaining life of three years and eight months, 4.358 percent, also higher than the 4.198 percent in the secondary market.
A total of P25 billion in securities were offered.
The secondary market is the trading platform between investors and the government usually looks at how much they charge each other to see how it will set its own rate.
"I think the market is still quite unsettled because of what is being anticipated for the (US) Fed," National Treasurer Roberto Tan told reporters after the auction.
"It will be better to come up the next auction for a bond issuance... when the market already absorbed and digested the Fed action happening next week," he said.
The T-bond auction was moved a week earlier from December 13, when the US Fed is scheduled to meet to set its own policy where investors expect it to raise rates again.
If realized, higher rates could make the US, the world's safe haven, more attractive to investors and thus, will prompt local interest rates to follow suit.
T-bonds are investment outlets given locally to borrow funds at a particular rate and payment period. Higher yields are disadvantageous for the government since it will have to set aside more funding for debt payment.
"Rates that are being bid out are quite off the market rates. So we decided to just reject. We would have liked to accommodate, following the direction but this might send the wrong signal," Tan said.
Sought for comment, a bond trader at a local bank also pointed to the higher inflation rate for November as a reason.
Inflation, as measured by consumer price index, hit a near two-year high of 2.5 percent last month from 2.3 percent in October.
It brought the 11-month rate to 1.7 percent, still below the two- to four-percent target for the year.
"There is an expected normalization of inflation as a result of recovering oil prices and weaker peso, plus the higher government spending plans," the trader said in a phone interview.
The T-bond auction was the last local borrowing for the year and Tan said he is hoping the market already calmed once they go back by the second week of January.
A total of P505.06 billion in gross domestic borrowings is planned next year to finance the budget deficit capped at P478.1 billion and pay existing debts.
Broken down, it covers P280 billion in shorter-dated Treasury bills and P465.04 billion in T-bonds.
"By second week next year, the market is already quiet, the uncertainty has been reduced drastically," Tan said.
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