The government rejected all bids for its offer of 7-year Treasury Bonds (T-bonds) on Tuesday, June 28, as investors were “excessively” pricing yields.
“(It’s a) full rejection” according to National Treasurer Rosalia V. De Leon.
“Market excessively priced risk premium in this offering just issued recently,” De Leon commented on Tuesday.
De Leon also said the market was providing “too much buffer with expected aggressive rate hikes to come.”
The BTr offered P35 billion T-bonds volume and received tenders amounting to P62.25 billion.
The government rejected the bids on yields higher than secondary market rate. Banks were willing to buy the T-bonds but at an average 6.947 percent. The BVAL (Bloomberg’s Evaluated Pricing service) rate is 6.627 percent. The auction rate even reached a high of seven percent.
The BTr is again offering P35 billion worth of 7-year T-bonds on June 30 and a fresh one on July 14.
This week’s rejection of all bids was in contrast to the previous week’s partial award of 10-year bonds. De Leon noted strong volume despite “long maturity but at a steep price”. She also said that the market was providing cushion for longer-dated T-bonds from the recent key interest rate increases by both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve.
The BSP on June 23 raised the benchmark rate anew by another 25 basis points (bps) to 2.5 percent, citing upside risks to inflation until the end of 2023. It sees the inflation environment falling back to within the two percent to four percent target only in 2024.
Outgoing BSP Governor Benjamin E. Diokno said inflation expectations have continued to rise and it needed a follow-through increase in the policy rate to enable the BSP to withdraw its stimulus measures while safeguarding macroeconomic stability amid rising global commodity prices and strong external headwinds to domestic economic growth. The BSP also increased the policy rate by 25 bps last May 19.
Both Diokno and his replacement, Monetary Board member Felipe M. Medalla has signalled a possible 25 bps rate hike on Aug. 18, its next Monetary Board policy meeting. This will raise the key rate to 2.75 percent.