Treasury rejects bids for 7-year Treasury bonds

The Treasury bureau rejected all bids for seven-year Treasury bonds at Tuesday's auction as banks questioning the central bank's so-called exit strategy asked for a premium. Finance Undersecretary Gil Beltran said investors wanted a higher premium for their money since they remained jittery over the government's budget deficit. "The rates are too high because [investors] were concerned about the deficit and the timing of the Bangko Sentral ng Pilipinas' exit strategy," Beltran, a member of the government's auction panel, told reporters. Last week, monetary authorities maintained the central bank's overnight policy rate at 4 percent but raised its short-term lending rate for banks under a rediscounting window by half-a-point to 4 percent. Some analysts expect the central bank to raise rates soon to mop out liquidity amid the recovering economy. Had the government's auction committee accepted the bids, the average rate of the bonds would have risen by 78.7 basis points to 7.465 percent. The highest bid stood at 7.675 percent, while the lowest bid was 7.199 percent. Total tenders reached P8.425 billion, below the P8.5 billion offered by the government. Beltran said the government could still afford to reject bids following the sale of dollar- denominated bonds last month. The government sold $1.5 billion worth of the bonds last month to plug its widening budget gap. "We can afford to reject at the moment because of the large cash balances from last month's issue," he said. But Beltran said investors need not be concerned about the budget deficit because the government would keep the gap at P293 billion this year, revised from an earlier estimate of P233 billion. "We are going to remain within the targeted level," he added. The government expects the budget deficit to have hit P290 billion last year, above the official budget deficit ceiling of P250 billion but below a previous estimate of P300 billion. As of end-November 2009, the budget deficit had swelled to P272.5 billion, more than four times the P66.7 billion incurred in the prior year mainly due to weak revenues. During the eleven-month period, revenues reached only P1.021 trillion, 5.5 percent lower than a year earlier, while expenditures rose by 12.7 percent to P1.294 trillion. — GMANews.TV