Treasury selling bonds over-the-counter

MANILA, Philippines—The Bureau of the Treasury has offered to sell bonds over-the-counter, aiming to meet the government’s funding requirements without succumbing to “absurdly high” yields sought by banks in the regular securities auctions.

So far this year, the Treasury has offered 7- and 25-year bonds over-the-counter. The securities are being offered to government-owned and -controlled corporations (GOCCs).

Unlike in regular auctions where interest rates on short-term bills and long-term bonds are determined by bids raised by banks, the rates on debt instruments sold over-the-counter are set by the Treasury. The rates are based on secondary market yields.

In separate notices addressed to GOCCs, the Treasury said the 7-year bonds have a coupon rate of 5 percent, while the 25-year bonds have a coupon rate of 5.75 percent.

The over-the-counter facility allows the government to raise additional funds when money generated from regular auctions fall below targets. The facility is also tapped when the Treasury decides to sell more securities to meet excess demand.

National Treasurer Rosalia de Leon said the BTr’s move to tap the over-the-counter facility would help meet the investment requirements of GOCCs.

Pension funds Social Security System (SSS) and Government Service Insurance System (GSIS) are two of the state-owned firms that have the biggest portfolio investment requirements, she said.

“Securities sold over the counter will help address the reinvestment requirements of these tax-exempt institutions,” De Leon told the Inquirer.

Claiming that the government remained awash in cash, De Leon said the main objective of the over-the-counter sale was to respond to the investment needs of GOCCs. State-owned firms do not buy government securities through the regular auctions, which are participated in by banks, she explained.

The latest over-the-counter offering of government securities has come amid the trend of rising interest rates that has hounded auctions since the start of the year.

Saying it would only allow reasonable increase in interest rates, the Treasury rejected some bids in the recent auctions that carried absurdly high yields sought by banks.

In the auction on Feb. 3, for instance, the Treasury rejected all bids for 182- and 364-day bills, as well as some bids for the 91-day debt paper, saying the rates sought by banks were too high.