The government on Tuesday rejected some bids for the 3-year treasury bonds as concerns over inflation and the tapering of stimulus in the United States pushed banks to seek higher yields.
The three-year debt paper fetched a rate of 2.399 percent, up by 34.5 basis points from what was recorded in the previous auction for the same securities in July last year.
The Bureau of the Treasury’s auction committee accepted only P9.62 billion worth of bids, lower than the P25 billion it was supposed to have raised according to the borrowing program.
Total bids amounted to P33.22 billion, even higher than what was supposed to be borrowed. But officials said that, although demand for the securities was high, many bidders sought unreasonably high rates.
Had the auction committee accepted P25 billion worth of bids as stated in the schedule, the rate of the bonds would have reached 2.681 percent.
But National Treasurer Rosalia de Leon told reporters that some market players overreacted to the news on inflation and the tapering decision of the US Federal Reserve.
She stressed that, because the Philippines’ macroeconomic fundamentals remained strong and that the government’s fiscal position was sound, investors need not ask for a significantly higher risk premium from government bonds.
And even if inflation had accelerated recently, she said, the average increase in consumer prices would likely remain within the official target of 3 to 5 percent.
Last year, inflation averaged 3 percent, or at the low end of the official target. This year, however, inflation is seen to hit between 4 and 5 percent.
Monetary officials in the United States decided to cut back the stimulus program, citing the economy’s improvement.
In particular, the US Federal Reserve reduced its monthly bond purchases by $10 billion to $75 billion.
As a result, investors are expected to dump the assets of emerging markets in favor of US Treasuries.
Already, some portfolio investors have withdrawn part of their funds in emerging economies in anticipation of the decline in value of emerging market assets.
De Leon said market players should focus more on the Philippines’ macroeconomic fundamentals.
The fact that the Philippines is expected to have posted a growth rate of nearly 7 percent last year, and may sustain robust growth this year, is reason enough for the Treasury to reject bids for absurdly high interest rates.