TERM DEPOSITS offered by the central bank yesterday continued to see tepid demand, settling below the reduced auction volume ahead of an expected rate hike in the United States and after the government’s successful retail bond sale.

Bids for Wednesday’s term deposit facility (TDF) auction settled at P74.109 billion, down from last week’s P82.727 billion and settling below the downsized P80-billion volume the Bangko Sentral ng Pilipinas (BSP) placed on the auction block. This drove yields upward for both the week-long and month-long tenors.

The seven-day term deposits received tenders totalling P41.269 billion, picking up from P37.351 billion the previous to settle just above the P40 billion which the central bank wanted to sell.

The tight supply drove the average yield slightly higher to 3.4171% from 3.4005% during the Nov. 29 auction.

Meanwhile, demand for the 28-day tenor slumped further to P32.84 billion against P45.376 billion which players wanted to park under the BSP’s facility. This settled below the reduced offering of P40 billion, down from the P90 billion auctioned off a week prior.

In turn, the average interest rate moved sideways to 3.494%, coming from last week’s 3.492%.

The TDF is currently the central bank’s main tool to capture excess liquidity in the financial system by allowing banks to place extra cash they hold, in exchange for a small return. Through this, the BSP expects to influence market rates to log closer to the 3% benchmark rate, coming from below the 2.5% floor of the interest rate corridor.  

This week marks the BSP’s sizeable cut in the TDF offering to P80 billion, coming from the P130 billion dangled back in November.

Sought for comment, BSP Deputy Governor Diwa C. Guinigundo said the undersubscription leaves fewer funds left for the central bank to capture.

“Lower TDF subscription means bank funds are deployed to lending, foreign exchange purchases, investment in government securities including RTBs (retail Treasury bonds). But in the final analysis, all this means there is lower excess liquidity which the BSP should mop up,” the central bank official said.

The Treasury raised a total of P255.4 billion from its offering of five-year RTBs, over eight times the P30 billion the government initially eyed to raise.

For next week, the BSP is again looking to offer P80 billion in term deposits as an option for banks to park their idle funds in.

Market players are likewise anticipating the decision of the US Federal Reserve following their Dec. 12-13 meeting, where they are expected to hike rates by another 25 basis points. This is expected to drive global yields higher. — Melissa Luz T. Lopez