Banks swamped Tuesday’s auction for seven-year treasury bonds, as their increased liquidity improved their appetite for government securities.
Bids for the long-term government securities amounted to P44.06 billion, more than four times the P9 billion worth of T-bonds offered.
The Bureau of the Treasury’s auction committee accepted P9 billion worth of bids despite the opportunity to raise more cash, saying there was no urgency to borrow more than what was programmed.
The seven-year bonds fetched a rate of 5 percent, down by about 91 basis points from its previous rate. Tight competition among investors apparently resulted in lower rate.
The BTr was originally scheduled to sell four-year bonds in Tuesday’s auction, but decided to issue seven-year bonds instead.
Deputy Treasurer Eduardo Mendiola said the decision was based on the amount of bonds in the secondary market, adding that there had been significant volumes of bonds of various tenors in the market, except seven-year bonds.
Mendiola told reporters that the strong demand for the seven-year bonds and for government securities in general had to do with the huge resources of the banks, particularly those serving as government securities eligible dealers (GSEDs).
Mendiola said the favorable fiscal performance of the government and the manageable inflation did not give investors enough reason to seek higher-risk premiums.
Inflation in the first seven months of the year averaged 4.3 percent, staying within the full-year average target of between 3 and 5 percent.
The government’s budget deficit was only P17.23 billion in the first half, way below the P152-billion ceiling set under the fiscal program for the period. This was largely due to underspending by the government.
Budget officials said, however, that spending in the second half was expected to accelerate. This means the deficit in July to December will likely be substantially higher than the gap in the first half.
The substantial liquidity enjoyed by banks is credited largely to rising incomes of individual and corporate depositors that allowed them to park more money in banks.