As the country faces a deeper crisis in the wake of the US-Iraq war, aggravated by the impending international sanctions that were expected to disrupt dollar inflows from overseas Filipino workers, the market has been forcing the government to allow interest rates to go up.
Interest rates have been stable at record lows for almost a year but the market is anticipating the government's increasing desperation for funds as it struggles to contain its budget deficit in the face of increasing debt obligations.
National Treasurer Sergio Edeza confirmed that the BTr has decided to cancel Monday's auction which would have raised a total of P3.5 billion from the sale of five-year Treasury bonds.
Earlier, the BTr threatened to cancel the auctions of government securities to punish the market for attempting the push rates up. It also rejected all bids for four-year bonds on Tuesday, right after it totally rejected all bids for Treasury bills the previous day.
"We can afford to reject (bids) until July and we may consider canceling the auctions if the market will insist on behaving irrationally and submitting unreasonable bids," said Edeza.
On Monday's T-bill auction, the auction committee rejected all bids for all tenors as banks attempted to push rates up by as much as 111 basis points.
Banks were confident that, given the government's unsuccessful attempt to raise E500 million from its recent Eurobond offer, finance officials would be desperate enough to allow interest rates to go up since it still needed money to finance its budget deficit.
Bids for the 91-day Treasury bills would have gone up by 96.5 basis points to 6.637 percent while the bids for the 182-day notes would have gone up by 111.2 bps to 7.12 percent.
The bids for the one-year tenor notes were just as bad and the 365-day bill rate would have gone up by 85 points to 8.459 percent had the committee not rejected the bids.
"We're the only creditworthy borrower in town," said deputy treasurer Eduardo Mendiola, visibly irked by the day's session. "The government is the most secure borrower among so many lenders." – Des Ferriols