DEMAND for term deposits recovered yesterday, driving yields higher as banks wanted to park more funds with the central bank as they look for viable outlets to place their excess liquidity.

Wednesday’s offering received bigger bids amounting to P174.847 billion, recovering from the previous week’s P141.24 billion and moving close to the P180 billion the Bangko Sentral ng Pilipinas (BSP) placed on the auction block.

The offering of the seven-day tenor was oversubscribed yesterday after two weeks of receiving tenders less than P40 billion.

Banks wanted to place P52.579 billion in the week-long facility from just P35.05 billion last week. However, the firms asked for bigger returns to fetch a 3.3345% average rate, climbing from 3.308% previously as requested yields ranged between 3.25-3.4%.

Offers for the 28-day term deposits also inched higher to P122.268 billion from P106.19 billion a week ago, but still failed to fill the P140 billion put up for auction by the central bank. The average yield rose higher to 3.4949% from 3.4929% previously, nearly maxing out the 3.5% ceiling rate set by the BSP.

The term deposit facility (TDF) is the central bank’s primary tool to capture excess money supply in the financial system by allowing banks to park their excess funds with the BSP — or those which are not used for loans or set aside as reserves — in exchange for a small return.

Only banks can participate in the weekly central bank auctions since July, as the one-year leeway given to trust firms ended last June 30. As a rule, firms can ask for rates ranging from 2.5-3.5%, which is the current spread of benchmark rates since June 2016.

Yesterday’s offering is the first TDF auction following the decision of the United States Federal Reserve to keep rates steady during their July 25-26 review.

This week’s auction of Treasury bills likewise saw strong demand which allowed the government to fully award its P15-billion offer, as market players unravelled their positions from a wait-and-see mode the previous week ahead of the Fed’s decision.

BSP Deputy Governor Diwa C. Guinigundo has said recent auction results showed banks are choosing to deploy funds to lending activities, which are higher yielding when compared to rates paid by the central bank under the TDF.

For next week, the central bank kept the TDF auction volume at P180 billion. Broken down, P40 billion carry a seven-day term, while P140 billion will come with a month-long maturity. — Melissa Luz T. Lopez

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