MANILA, Philippines - Bids for seven-year Treasury bonds (T-bonds) were rejected yesterday with the government finding rates too high for an offer which attracted lesser demand than expected, shortly after the recently concluded debt exchange.
Tenders for the reissued seven-year T-bonds—with a remaining life of six years and 11 months—amounted to P13.371 billion, short of the P25-billion offered by the government, the Bureau of the Treasury said in a statement.
“The auction committee decided to reject all tenders…on the back of very low demand and higher-than-expected rates,” the Treasury said. If tenders were accepted, the government would have paid 3.773 percent in interest against the 3.5-percent it paid last auction.
Emilio Neri Jr., lead economist at the Bank of the Philippine Islands, said the result does not signify a loss of market appetite for the paper, but merely showing that investors are still “full” following the debt swap two weeks ago.
The Philippines sold more than double its minimum target in its last bond exchange transaction, offering P237-billion worth of new 10-year and 25-year bonds for eligible maturing securities. In addition, P9.6 billion in fresh 2040 bonds were also awarded.
“It is all a matter of the timing of the bond auction because the market is still full from the bond exchange transaction,” Neri said.
For the government’s part, a “strong cash position” has allowed it to reject bids for the time being, signifying it is not in dire need of money at the moment.
As of July, the Aquino administration’s budget deficit—signifying higher disbursements than revenues—amounted to P18.5 billion, way below this year’s cap of P283.7 billion, equivalent to two percent of economic output.
The government borrows from both the local and overseas markets to finance its budget deficit and manage its liabilities to have better terms. For instance, the debt swap was undertaken even amid a narrow deficit in order to lower interest payments and lengthen payment terms.
“They (the government) had numerous surpluses in the past months before this deficit in the most recent months. So I guess, you can say that they have a good cash position and they probably just want to auction for their future needs,” Neri explained.