Treasury partially awards bids for 7-year bonds

The Treasury bureau partially rejected bids for seven-year bonds at Tuesday's auction after some banks asked for a premium following concerns over the government's budget deficit and speculations of central bank tightening. The Treasury intended to raise P8.5 billion from the auction of reissued seven-year T-bonds with a remaining life of five years. It accepted only P4.371 billion of the P13.241-billion bids. The paper fetched 6.233 percent, 33.9 basis points higher than 5.894 percent for five-year retail Treasury bonds sold last September 15. Seven-year retail Treasury bonds fetched a coupon rate of 7 percent at the September 15 auction. "We didn't find them (high bids) justified because a lot of them were driven by market sentiment," National Treasurer Roberto B. Tan told reporters after the auction. "The market is speculating the Bangko Sentral ng Pilipinas (BSP) might start tightening," he added. The BSP earlier said it would start unwinding its loose monetary policy. It is reviewing the rate for lending short-term money to banks under a rediscounting facility. The Monetary Board, the BSP's policy-making body, will meet on January 28 to decide on benchmark interest rates. Tan said the bids were also influenced by concerns that the government budget deficit might exceed this year's target. The budget gap had reached P272.5 billion at the end of November, P22.5 billion past the P250-billion target. The government has said the 2009 shortfall could have hit slightly below P300 billion. This year, the government expects the deficit to swell to P293 billion from an initial estimate of P233.4 billion due to weak revenues. Tan said that even with the adjustment of the deficit target for the year, "domestic borrowing will still be almost the same as we originally programmed." "The system is still very much liquid so there really is no reason for banks to ask for higher yields. A lot of their reasons were speculative," he said. "It's the start of the year so everybody is not sure what will happen. People are still not sure about their projections for the year bcause they are still waiting for a lot of data," Tan said. Bond traders said the partial award of the debt paper showed the Treasury bureau was not willing to allow rates to go up. Market expectation was 6.25-6.5 percent for the issue, a bond trader said. "Yields may go down after this auction since we see that the Treasury bureau's threshold is around 6.25 percent for the five-year bond," another bond trader said. — Louella D. Desiderio, BusinessWorld