Government rejects all bids for 7-year Treasury bonds

MANILA, Philippines - The government rejected all bids for its seven-year Treasury bonds (T-bonds) during yesterday’s auction as banks submitted high offers for the debt paper on sale.

Had the government’s auction committee accepted the bids, the average rate would have risen to 7.482 percent from 6.678 percent previously. The bids ranged from 7.36 percent to 7.49 percent.

Banks submitted a total of P8.17 billion worth of bids. The government had planned to sell P6.5 billion worth of the paper.

The government’s auction committee, led by Finance Undersecretary Gil Beltran, did not think twice and immediately rejected all the bids.

“We rejected everything because it’s beyond the secondary market rates,” said Beltran, who is also officer-in-charge of the Department of Finance while Finance Secretary Margarito Teves is in Turkey for the World Bank-International Monetary Fund annual meetings.

Beltran noted that in the secondary market, a venue where investors who are in need of immediate cash sell the debt papers they acquired from the government, is 7.28 percent, still lower than the lowest bid of 7.35 percent during yesterday’s auction.

The Finance executive said yesterday’s auction results may have been due to the uncertainties in the market caused by the plan to provide a supplemental budget of P10 billion for victims of typhoon Ondoy.

“The market is blinded by the P10 billion additional deficit,” Beltran lamented.

However, he clarified that the government’s existing borrowing program is flexible and can accommodate the P10 billion.

“We don’t have to add billions every time there’s an addition in our spending,” Beltran said.

This means that the government will try to contain the deficit at P250 billion this year or 3.2 percent of gross domestic product (GDP).

Lawmakers earlier proposed to set aside a P10-billion supplemental budget for post-Ondoy rehabilitation efforts, sending jitters to the market that this could bloat the government’s budget gap beyond the program.

Beltran said the P10 billion proposed additional spending for rehabilitation efforts would be released in tranches and not a one-time disbursement.

The government’s budget deficit reached P210 billion as of end-August, only P40 billion shy of the target for the whole year.