BTr acts to ensure transparency in negotiated sale of government securities

The Bureau of the Treasury (BTr) will put in place measures to ensure transparency in the sale of government securities through negotiation, Finance Undersecretary and Acting National Treasurer Roberto Tan  said yesterday.

This as the Money Market Association of the Philippines (MART), the group of securities dealers in the country, expressed concerns on the move of the BTr to sell debt papers through negotiation, saying that the move may be detrimental to the market.

MART has said the move is not transparent, does not provide the market with a level playing field and is disadvantageous to the primary and secondary markets.

Tan, however, said the government may consider some kind of a feedback mechanism.

He also defended the BTr’s move to again sell debt papers through negotiation, saying that this has been done before. “There’s always been negotiated sale before. This is just an avenue open for us given that we’ve have had unrealistic rates the past weeks so we had to open other windows,” Tan said.

The move came as banks have been submitting unreasonably high offers for government debt papers over the past five weeks.

Tan also dismissed the issues raised by MART as he assured that the rates will not necessarily go up under a negotiated sale.

In its position paper, MART said the market price of a bond is a factor of supply, timing of issuance, tenor to be issued, among others.

“If this information will not be publicly given, bond price will be subject to extreme volatility,” MART had said.

Furthermore, the group said a negotiated sale has a tendency to favor the larger banks which may have more capacity to bid more aggressively in this window. MART said larger banks have bigger clients with bigger requirements as well as bigger funding pool.

“This is in contrast to the regular public auction wherein all government securities dealers, regardless of size, would have equal opportunity to win at same price,” MART said.

Tan also disputed this, saying that the BTr does not discriminate against small banks.

“We can negotiate lower volume,” he said.

MART also said the market may prefer to ignore the primary auctions which only happen once a week and will instead go to the negotiation route wherein they could buy whatever bond for whatever size at whatever day without anyone in the market knowing.

The group expressed fears that banks with huge requirements will opt to go to the BTr’s negotiation route to buy on a negotiated price, instead of sourcing from the secondary market.

“In addition, 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 the supply of a certain bond which may have been sourced from the negotiation route. As uncertainty demands a premium, rate uptrend risk will only further push away investors’ appetite for government securities,” MART said.