Gov’t limits retail bonds sale to P70B in auction

By Ruben Hortelano

07/24/2008

The government limited its sale of retail Treasury bonds (RTBs) yesterday to only P70 billion despite the high demand for the debt papers.

Treasury chief Roberto Tan himself acknowledged there was a “surge in demand” from the banks and from the various government-owned or controlled corporations who wanted to buy more of the debt papers.

The sale was programmed to last until the 29th of the month but had been cut short.

He said selling more than P70 billion would result to a negative carry, or one where the cost of warehousing the money till government actually has use for it would be larger than the interest they pay to investors who bought the IOUs.

“There was too much surge in demand for it,” Tan told reporters.

This year’s RTB sale compares with last year’s where P77.6 billion was also raised.

Tan said the bulk of P60 billion was set aside for the retail market where anyone with as little as P5,000 could participate.

The balance of P10 billion was reserved for the GOCCs who needed to invest a portion of their holdings in an instrument that pays well, he said.

He also said the five-year RTBs were to cost taxpayers interest of nine percent each year till 2013 and another 8.5 percent for the three-year paper.

The rates compare very favorably against the overnight lending rate of the Bangko Sentral ng Pilipinas, for example, which gives them only 7.75 percent.

Tan also said the success of the RTB sale has forced the Department of Finance to review its borrowing program this year and possibly cancel some of its peso borrowings.

The same goes for its foreign borrowing program where up to $750 million in bonds or loans could similarly be scrapped.

Already, the BSP has given Finance Secretary Margarito Teves the go signal to obtain financing overseas to help him limit the year’s budgetary shortfall to P75 billion.

Teves crafted a borrowing plan which assumed 70 percent of the required financing was to be sourced from domestic creditors and only 30 percent from foreign lenders.

That plan also assumed government was able to balance its books and end the year with just as much revenues as there were expenditures.

Tan said the borrowing program needed to be reviewed as they move back to a deficit this year instead of the planned balance.

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