This post is a follow up to a previous post "Revisiting the PEACe Bonds.", which is very long. A shorter version can be found here.
This new post contains new information regarding the bidding results of the PEACe Bonds Auction, the first auction of zero-coupon Treasury Bonds in the Philippines and the most controversial to date. Specifically, it contains information on the GSEDs that bid for the PEACe Bonds, how much they bid for, and at what YTMs.
Recap of PEACe Bonds Bidding
As a recap, the PEACe Bonds auction had the widest High-Low Bid Differential in history of the Philippine 10-Year Treasury Bond Auctions. The differential of 5.752% was so wide that was ten times the historic average bid differential in the 10 Year Treasury Bond auctions from 1998 to 2001.
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As a result of this differential, there was a huge gap in bond values between the highest and lowest bid:
The top winning bid was 71% higher than the bottom losing bid:
If the PEACe Bond auction bid differential had followed the historic average of only 0.422%, the top winning bid would only be 4.05% higher than the bottom losing bid:
At that rate, the gap between the top winning bid and the bottom losing bid will be imperceptible.
What the Wide High-Low Bid Differential Indicates
The wide High-Low Bid Differentials in YTMs and the corresponding large gap in bond values assigned by the bidding GSEDs is indicative of the following:
- The GSEDs simply didn't know how to price the PEACe Bonds.
- The GSEDs colluded to give the entire issue to RCBC.
How did Individual GSEDs Bid for the PEACe Bonds?
Ten years ago, very little information was released on how the individual institutions bid for the PEACe Bonds. In fact, this was all we had.
Based on recent data provided by government sources, that information is now available. The updated information can be seen below:
| PEACe Bond Auction | |||||
| Bidding Results | |||||
| On October 16, 2001 | |||||
| Bid # | Institution # | Time | YTM (In %) | Maturity Value | Institution - Client |
| 1 | 1 | 09:28:00 AM | 14.000% | 4,000,000,000.00 | International Exchange Bank |
| 2 | 1 | 09:28:00 AM | 13.500% | 3,000,000,000.00 | International Exchange Bank |
| 3 | 1 | 09:48:00 AM | 18.000% | 2,000,000,000.00 | International Exchange Bank |
| 4 | 1 | 09:48:00 AM | 17.500% | 1,500,000,000.00 | International Exchange Bank |
| 5 | 1 | 09:48:00 AM | 17.000% | 1,500,000,000.00 | International Exchange Bank |
| 6 | 1 | 09:48:00 AM | 16.500% | 1,000,000,000.00 | International Exchange Bank |
| 7 | 2 | 11:09:00 AM | 13.000% | 2,000,000,000.00 | Rizal Commercial Banking Corporation |
| 8 | 2 | 11:09:00 AM | 13.118% | 1,000,000,000.00 | Rizal Commercial Banking Corporation |
| 9 | 2 | 11:09:00 AM | 12.368% | 10,000,000,000.00 | Rizal Commercial Banking Corporation |
| 10 | 2 | 11:09:00 AM | 12.488% | 10,000,000,000.00 | Rizal Commercial Banking Corporation |
| 11 | 2 | 11:09:00 AM | 12.785% | 5,000,000,000.00 | Rizal Commercial Banking Corporation |
| 12 | 2 | 11:09:00 AM | 12.248% | 10,000,000,000.00 | Rizal Commercial Banking Corporation |
| 13 | 3 | 11:28:00 AM | 16.375% | 500,000,000.00 | Banco de Oro |
| 14 | 3 | 11:28:00 AM | 16.250% | 500,000,000.00 | Banco de Oro - Trust |
| 15 | 4 | 11:34:00 AM | 16.750% | 500,000,000.00 | United Coconut Planters Bank |
| 16 | 4 | 11:34:00 AM | 17.000% | 500,000,000.00 | United Coconut Planters Bank |
| 17 | 5 | 11:41:00 AM | 16.500% | 1,000,000,000.00 | Deutsche Bank |
| 18 | 5 | 11:41:00 AM | 16.250% | 1,000,000,000.00 | Deutsche Bank |
| 19 | 5 | 11:41:00 AM | 15.750% | 500,000,000.00 | Deutsche Bank |
| 20 | 5 | 11:41:00 AM | 15.000% | 500,000,000.00 | Deutsche Bank |
| 21 | 6 | 11:41:00 AM | 16.000% | 500,000,000.00 | Citibank N.A. - Philam Life |
| 22 | 6 | 11:41:00 AM | 15.250% | 500,000,000.00 | Citibank N.A. - Sunlife of Canada |
| 23 | 6 | 11:41:00 AM | 15.500% | 500,000,000.00 | Citibank N.A. - Sunlife of Canada |
| 24 | 7 | 11:42:00 AM | 16.500% | 500,000,000.00 | Chinatrust |
| 25 | 8 | 11:51:00 AM | 17.500% | 500,000,000.00 | China Banking Corp. |
| 26 | 8 | 11:51:00 AM | 13.875% | 3,750,000,000.00 | China Banking Corp. |
| 27 | 8 | 11:51:00 AM | 14.250% | 3,750,000,000.00 | China Banking Corp. |
| 28 | 8 | 11:51:00 AM | 13.800% | 500,000,000.00 | China Banking Corp. - Export and Industry Bank |
| 29 | 9 | 11:55:00 AM | 13.000% | 500,000,000.00 | Global Bank - FMIC |
| 30 | 9 | 11:55:00 AM | 15.000% | 6,100,000,000.00 | Global Bank |
| 31 | 9 | 11:55:00 AM | 14.000% | 1,480,000,000.00 | Global Bank |
| 32 | 10 | 11:55:00 AM | 14.500% | 10,000,000,000.00 | Metropolitan Bank & Trust Co. |
| 33 | 10 | 11:55:00 AM | 14.000% | 10,000,000,000.00 | Metropolitan Bank & Trust Co. |
| 34 | 10 | 11:55:00 AM | 13.750% | 8,000,000,000.00 | Metropolitan Bank & Trust Co. |
| 35 | 10 | 11:55:00 AM | 13.500% | 5,000,000,000.00 | Metropolitan Bank & Trust Co. |
| 36 | 10 | 11:55:00 AM | 13.250% | 5,000,000,000.00 | Metropolitan Bank & Trust Co. |
| 37 | 10 | 11:55:00 AM | 13.000% | 8,000,000,000.00 | Metropolitan Bank & Trust Co. |
| 38 | 11 | 11:57:00 AM | 15.850% | 900,000,000.00 | ING Bank |
| 39 | 12 | 11:57:00 AM | 16.500% | 5,000,000,000.00 | Development Bank of the Philippines |
| 40 | 13 | 11:59:00 AM | 16.500% | 3,100,000,000.00 | Equitable-PCIBank |
| 41 | 14 | 12:00:00 PM | 17.125% | 3,000,000,000.00 | Security Bank Corp. |
| 42 | 14 | 12:00:00 PM | 16.875% | 3,000,000,000.00 | Security Bank Corp. |
| 43 | 15 | 12:00:00 PM | 15.125% | 500,000,000.00 | HSBC - Sunlife of Canada |
| 44 | 15 | 12:00:00 PM | 15.375% | 500,000,000.00 | HSBC - Sunlife of Canada |
| 45 | 15 | 12:00:00 PM | 15.000% | 500,000,000.00 | HSBC - Manulife |
| 137,080,000,000.00 |
Source: Bureau of Treasury
When the bids are sorted by GSED and by bid and YTMs, you get this table (RCBC's winning bids are highlighted in yellow):
| PEACe Bond Bid Results | ||||||
| By Institution, by Bid YTMs | ||||||
| October 16, 2001 | ||||||
| Firm | Bid 1 | Bid 2 | Bid 3 | Bid 4 | Bid 5 | Bid 6 |
| IEB | 14.000% | 13.500% | 18.000% | 17.500% | 17.000% | 16.500% |
| RCBC | 13.000% | 13.118% | 12.368% | 12.488% | 12.785% | 12.248% |
| BDO | 16.375% | 16.250% | ||||
| UCPB | 16.750% | 17.000% | ||||
| Deutsche | 16.500% | 16.250% | 15.750% | 15.000% | ||
| Citibank | 16.000% | 15.250% | 15.500% | |||
| Chinatrust | 16.500% | |||||
| China Bank | 17.500% | 13.875% | 14.250% | 13.800% | ||
| Global | 13.000% | 15.000% | 14.000% | |||
| Metrobank | 14.500% | 14.000% | 13.750% | 13.500% | 13.250% | 13.000% |
| ING | 15.850% | |||||
| DBP | 16.500% | |||||
| Equitable | 16.500% | |||||
| Security | 17.125% | 16.875% | ||||
| HSBC | 15.125% | 15.375% | 15.000% |
When the bids are sorted out by GSED, by bid, and by Maturity Value, you get this table (RCBC's winning bids are highlighted in yellow).
| PEACe Bond Bids | |||||||
| By Institution, by Bid Maturity Value | |||||||
| (In PHP) | |||||||
| Oct 16, 2001 | |||||||
| Firm | Bid 1 | Bid 2 | Bid 3 | Bid 4 | Bid 5 | Bid 6 | Total |
| IEB | 4,000,000,000 | 3,000,000,000 | 2,000,000,000 | 1,500,000,000 | 1,500,000,000 | 1,000,000,000 | 13,000,000,000 |
| RCBC | 2,000,000,000 | 1,000,000,000 | 10,000,000,000 | 10,000,000,000 | 5,000,000,000 | 10,000,000,000 | 38,000,000,000 |
| BDO | 500,000,000 | 500,000,000 | 1,000,000,000 | ||||
| UCPB | 500,000,000 | 500,000,000 | 1,000,000,000 | ||||
| Deutsche | 1,000,000,000 | 1,000,000,000 | 500,000,000 | 500,000,000 | 3,000,000,000 | ||
| Citibank | 500,000,000 | 500,000,000 | 500,000,000 | 1,500,000,000 | |||
| Chinatrust | 500,000,000 | 500,000,000 | |||||
| China Bank | 500,000,000 | 3,750,000,000 | 3,750,000,000 | 500,000,000 | 8,500,000,000 | ||
| Global | 500,000,000 | 6,100,000,000 | 1,480,000,000 | 8,080,000,000 | |||
| Metrobank | 10,000,000,000 | 10,000,000,000 | 8,000,000,000 | 5,000,000,000 | 5,000,000,000 | 8,000,000,000 | 46,000,000,000 |
| ING | 900,000,000 | 900,000,000 | |||||
| DBP | 5,000,000,000 | 5,000,000,000 | |||||
| Equitable | 3,100,000,000 | 3,100,000,000 | |||||
| Security | 3,000,000,000 | 3,000,000,000 | 6,000,000,000 | ||||
| HSBC | 500,000,000 | 500,000,000 | 500,000,000 | 1,500,000,000 | |||
| Total | 32,500,000,000 | 29,850,000,000 | 26,730,000,000 | 17,500,000,000 | 11,500,000,000 | 19,000,000,000 | 137,080,000,000 |
What we know now:
What was well known ten years ago was that RCBC won the entire issue. They had the lowest bids in terms of YTMs. But what was not well known, until recently, was that both Global Bank and Metrobank came very close to the winning YTM bids. If both Global Bank and Metrobank had lowered their lowest bid YTMs by 25 basis points or 0.250% or more, they would have at least tied with RCBC's fourth winning bid and possibly have won a portion of the auction.
However, only Metrobank was RCBC's only true competitor. Only Metrobank, aside from RCBC, bid for enough PEACe Bonds to win the entire issue of PHP 35 billion.
If we compute the bond values assigned to each bid of the participating GSEDs to a PHP 1 M Face Amount of PEACe Bonds, we get this table:
| PEACe Bond Bids | ||||||
| PV of PHP 1M Face Amount | ||||||
| In PHP | ||||||
| Oct 16, 2001 | ||||||
| Present Value of PHP 1 M Face Amount PEACe Bond | ||||||
| Firm | Bid 1 | Bid 2 | Bid 3 | Bid 4 | Bid 5 | Bid 6 |
| IEB | 258,419 | 270,796 | 178,431 | 186,816 | 195,616 | 204,853 |
| RCBC | 283,797 | 280,671 | 301,175 | 297,791 | 289,587 | 304,599 |
| BDO | 207,233 | 209,642 | ||||
| UCPB | 200,179 | 195,616 | ||||
| Deutsche | 204,853 | 209,642 | 219,575 | 235,413 | ||
| Citibank | 214,548 | 230,005 | 224,727 | |||
| Chinatrust | 204,853 | |||||
| China Bank | 186,816 | 261,457 | 252,455 | 263,297 | ||
| Global | 283,797 | 235,413 | 258,419 | |||
| Metrobank | 246,635 | 258,419 | 264,532 | 270,796 | 277,217 | 283,797 |
| ING | 217,550 | |||||
| DBP | 204,853 | |||||
| Equitable | 204,853 | |||||
| Security | 193,376 | 197,884 | ||||
| HSBC | 232,692 | 227,350 | 235,413 | |||
Wide Dispersion of Bond Values, even within the individual GSED bids
What is also well known was that the different GSEDs assigned widely divergent values to the PEACe Bonds. RCBC, of course, being the winning bidder, assigned the highest bond values to the PEACe Bonds. And again, both Global Bank and Metrobank assigned the second highest bond values to the bonds. International Exchange Bank assigned the lowest bond value to the PEACe Bonds. Most of the other GSEDs' bids came at PHP 210,000 per PHP 1 M Face Amount PEACe Bond, around PHP 70,000 less than PHP 290,000 per PHP 1 M Face Amount PEACE Bond - the winning cut-off mark.
As can be seen from the above column chart, the values assigned by GSED to the PEACe Bonds were widely divergent, even within the GSED. A tabulation of these bid differentials within the participating GSEDs is as follows:
| PEACe Bond Bids | |||||
| PV of PHP 1M Face Amount | |||||
| In PHP | |||||
| Oct 16, 2001 | |||||
| Present Value of PHP 1 M Face Amount PEACe Bond | |||||
| Firm | Average | Min | Max | Bid Differential | % Bid Differential |
| IEB | 215,822 | 178,431 | 270,796 | 92,365 | 51.77% |
| RCBC | 292,937 | 280,671 | 304,599 | 23,928 | 8.53% |
| BDO | 208,438 | 207,233 | 209,642 | 2,409 | 1.16% |
| UCPB | 197,898 | 195,616 | 200,179 | 4,563 | 2.33% |
| Deutsche | 217,371 | 204,853 | 235,413 | 30,560 | 14.92% |
| Citibank | 223,093 | 214,548 | 230,005 | 15,457 | 7.20% |
| Chinatrust | 204,853 | 204,853 | 204,853 | 0 | 0.00% |
| China Bank | 241,006 | 186,816 | 263,297 | 76,481 | 40.94% |
| Global | 259,210 | 235,413 | 283,797 | 48,384 | 20.55% |
| Metrobank | 266,899 | 246,635 | 283,797 | 37,162 | 15.07% |
| ING | 217,550 | 217,550 | 217,550 | 0 | 0.00% |
| DBP | 204,853 | 204,853 | 204,853 | 0 | 0.00% |
| Equitable | 204,853 | 204,853 | 204,853 | 0 | 0.00% |
| Security | 195,630 | 193,376 | 197,884 | 4,508 | 2.33% |
| HSBC | 231,818 | 227,350 | 235,413 | 8,063 | 3.55% |
| Total | 225,482 | 213,537 | 236,462 | 22,925 | 10.74% |
For instance, International Exchange Bank submitted the lowest bid value, at PHP 178,431 per PHP 1 M Face Amount. But its highest bid was fairly close to the cut-off of PHP 290,000 per PHP 1 M Face Amount. As a result, the difference between its highest and lowest bid amounted to PHP 92,365. In other words, its highest bid was 51.77% higher than its lowest bid, a very wide range by any standard.
Next in line is China Bank. Its lowest bid was PHP 186,816 per PHP 1 M Face Amount but its highest bid was PHP 263,297 per PHP 1 M Face Amount for a bid differential of PHP 76,481 per PHP 1 M Face Amount. This amounts to 40.94% of the lowest bid.
Even Global Bank had high bid differentials. Its highest bid was PHP 283,797 or 20.55% higher than its lowest bid of PHP 235,413.
Metrobank came in fourth,with its highest bid 15.07% higher than its lowest bid. Still, this amounted to as much as PHP 37,162 per PHP 1 M Face Amount.
Of the firms that submitted four or more bids for the PEACe Bonds, RCBC had the narrowest range, with the highest bid only 8.53% higher than its lowest bid.
The wide dispersion of bond values assigned by a GSED to a PEACE Bond is reflected in dispersion of the YTMs of the bids. For instance, the bid differential of International Exchange Bank's bids is 4.500% or more than ten times the historic bid differential of 0.422% (high-low bid differential of 10 Year Philippine Treasury Bond Auctions from 1998 to 2001).
| PEACe Bond Bids | ||||||
| By Institution, by Bid YTM | ||||||
| October 16, 2001 | ||||||
| Bid Differential/ | ||||||
| Firm | Average YTM | Min YTM | Max YTM | Bid Differential | Historic Bid Differential | Historic Bid Differential |
| IEB | 16.083% | 13.500% | 18.000% | 4.500% | 0.422% | 10.66 |
| RCBC | 12.668% | 12.248% | 13.118% | 0.870% | 0.422% | 2.06 |
| BDO | 16.313% | 16.250% | 16.250% | 0.000% | 0.422% | 0.00 |
| UCPB | 16.875% | 17.000% | 17.000% | 0.000% | 0.422% | 0.00 |
| Deutsche | 15.875% | 15.000% | 16.250% | 1.250% | 0.422% | 2.96 |
| Citibank | 15.583% | 15.250% | 15.500% | 0.250% | 0.422% | 0.59 |
| Chinatrust | 16.500% | 0.000% | 0.000% | 0.000% | 0.422% | 0.00 |
| China Bank | 14.856% | 13.800% | 14.250% | 0.450% | 0.422% | 1.07 |
| Global | 14.000% | 14.000% | 15.000% | 1.000% | 0.422% | 2.37 |
| Metrobank | 13.667% | 13.000% | 14.000% | 1.000% | 0.422% | 2.37 |
| ING | 15.850% | 0.000% | 0.000% | 0.000% | 0.422% | 0.00 |
| DBP | 16.500% | 0.000% | 0.000% | 0.000% | 0.422% | 0.00 |
| Equitable | 16.500% | 0.000% | 0.000% | 0.000% | 0.422% | 0.00 |
| Security | 17.000% | 16.875% | 16.875% | 0.000% | 0.422% | 0.00 |
| HSBC | 15.167% | 15.000% | 15.375% | 0.375% | 0.422% | 0.89 |
Conclusion:
The wide dispersion of bid YTMs and the resulting wide dispersion in bond values assigned by a participating GSED to the PEACe Bonds is indicative of a "shotgun" approach to bidding. This indicates that some individual GSEDs, namely International Exchange Bank, China Bank, and Global Bank, didn't know precisely how to value the PEACe Bonds and as a result, cast a very wide net hoping to snare some PEACe Bonds.
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