|
THE Money Market Association of the Philippines (MART) said a Bureau
of Treasury plan to negotiate with state-owned firms for future
borrowings instead of auctioning off debt papers is inconsistent
with long-held principles of transparency and impartiality.
In a letter to the bureau, Joan G. Policarpio
and Joselito Recardo G. Nazario, MART chairperson and president,
respectively, said the price of a government security should be a
factor of supply, timing of issuance, and maturity. Failure to
publicly make available this information will subject bond prices to
extreme volatility.
Volatility is the bane of financial markets as
this represents greater risk, thus discouraging investors.
The traders’ group said negotiation tends to
favor larger banks, which may have more capacity to bid more
aggressively, given their bigger clients as well as bigger funding
pool.
“This is in contrast to the regular public
auction wherein all GSEDs, regardless of size, would have equal
opportunity to win at the same price,” the letter read, referring
to government securities eligible dealers.
The association said the market may prefer to
ignore the primary auctions, which happen once a week, and will
instead go to the negotiation route where they can buy whatever bond
for whatever size at whatever day without anyone in the market
knowing.
Negotiated bonds are disadvantageous to the
secondary market, MART also said.
“Banks with huge requirement will opt to go to
the [treasury bureau’s] negotiation route to buy on a negotiated
price, instead of sourcing from the secondary market,” it added.
MART said it would not make sense for a
market-maker to bid aggressively in the market for a good volume as
it has no knowledge of how “deep” is the supply of a certain
bond that may have been sourced from the negotiation route.
As uncertainty demands a premium, MART said rate
uptrend risk will only further push away investors’ appetite for
government securities. This means the government would have a harder
time securing its borrowings in a transparent and cheaper manner.
MART has offered to volunteer its assistance in
discussing further with the treasury bureau the implications of the
new rule.
After the bureau failed to secure borrowing from
debt-paper sales in recent weeks, it decided to negotiate with
interested buyers with the aim of getting fresh funds at lower
rates. The government had turned down recent offers from banks and
other bidders, which have been pushing for higher yields in exchange
for parting with their money. Higher yields would result in higher
borrowing costs for the government.
“We’re not correlating these with each
other,” Finance Secretary Roberto B. Tan however said, referring
to concerns that this was the result of four consecutive rejections
that the government made in their previous auctions of bills and
bonds.
Marcelo Ayes, Rizal Commercial Bank Corp. (RCBC)
Vice-President, said the treasury bureau may be able to get better
price this time, although the decision to sell government IOUs at
negotiated rates may result in uncertainties.
“Moreover, [the] Dutch auction is more
transparent than negotiation,” Ayes said, adding that negotiated
rates cannot be used as a benchmark for banks because they are prone
to be concluded “under the table.”
At the secondary market Tuesday, the 91-day
Treasury bill stood at 4.55 percent.
“We project that it will rise to 5 percent in
June this year,” Ayes said.
-- Chino S. Leyco
|
