MANILA— The Bureau of the Treasury’s (BTr) auction committee on Tuesday rejected all bids for the seven-year treasury bond (T-bond) after banks asked for high yields.
The BTr offered the debt securities for PHP20 billion and banks submitted PHP25.824 billion worth of bids.
However, banks asked for rates ranging between 5.034 to 5.273 percent, which National Treasurer Rosalia de Leon claimed surpassed their estimates.
“We see that their rates are really way beyond our estimates, of what the reasonable rates that we expect for this tenor, for this new issuance,” she told reporters after the auction.
In the secondary market, rate of the seven-year fixed income paper stood at 5.9432 percent in the morning session Tuesday.
De Leon declined to give a range of their rate estimate for the seven-year paper but said factors covered in their rate projection include the higher-than-expected four percent domestic inflation rate last January, and rates of the same tenor debt securities in the past auctions.
She said consensus estimate for inflation last January was only 3.5 percent, hence banks’ worries on the inflation path along with expectations for interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) and the Federal Reserve added to the financial institutions’ decision to ask for higher yield for the T-bond.
The BSP’s policy-making Monetary Board (MB) will have its first rate setting meet this year on Feb. 8 and some analysts have projected it to start increasing rates this month to address possible inflationary pressures from the higher commodity prices, among others, due in part to the impact of the tax reform.
The first package of the Tax Reform for Acceleration and Inclusion (TRAIN) law took effect on Jan. 1, 2018, cutting workers’ income tax rate and making their first PHP250,000 annual income tax-free.
In return, excise tax on fuel and sugar-sweetened beverages, among others, were hiked to counter the cut on income taxes.
With excise taxes on several products increasing, some analysts forecast jumps in inflation rate although economic officials said its effect on the rate of price increase would be transitory.
De Leon said any increase on the inflation rate would have an effect on investors’ risk appetite.
Asked how big the jump in yields that banks demand when they are worried on inflation risks, among others, the National Treasurer said this depends on the tenor and how investors see inflation upticks would be.