Yields on BSP’s term deposits mixed on deficit, dovish Fed

YIELDS on the central bank’s term deposits were mixed on Wednesday as the government posted a wider budget deficit in September and as the US Federal Reserve chief said they could keep rates untouched to support the labor market.

Demand for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) amounted to P548.928 billion, higher than the P480-billion offer but failing to beat the P585.627 billion in tenders seen a week earlier.

Broken down, the seven-day term deposits fetched bids amounting to P176.65 billion, surpassing the P160 billion auctioned off by the BSP but much lower than the P239.493 billion in tenders logged in the previous week’s offering.

Accepted rates for the tenor ranged from 1.7% to 2%, wider than the 1.7% to 1.78% band logged a week ago. This caused the average rate of the one-week deposits to slip by 1.66 basis points (bps) to 1.7521% from 1.7355% previously.

Meanwhile, demand for the two-week deposits amounted to P372.278 billion, higher than the P320-billion offer as well as the P346.134 billion seen in the previous auction.

Banks asked for yields from 1.73% to 1.8%, narrower than the 1.7195% to 1.82% range seen last week. This caused the average rate of the paper to dip by 0.22 bp to 1.7723% from the 1.7745% quoted on Oct. 20.

The BSP has not offered 28-day term deposits for more than a year to give way to its weekly offerings of bills with the same tenor.

The term deposits and the 28-day bills are used by the BSP to gather excess liquidity in the financial system and guide market rates.

“The TDF auction results reflect market participants’ search for yield in the longer tenor amid sustained stable market conditions, supported by ample liquidity in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said.

TDF yields were mixed on Wednesday following the budget deficit data released earlier this week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The government’s budget deficit widened by 30% to P180.9 billion in September from P138.5 billion a year earlier, as spending outpaced the pickup in revenues, data released by the Bureau of the Treasury on Monday showed.

For the first nine months of 2021, the fiscal gap reached P1.1 trillion, higher by 29.56% from the same period a year ago.

The market also factored in comments from Fed Chairman Jerome Powell, who said they could keep rates near zero even when they start tapering their bond purchases, Mr. Ricafort added.

Mr. Powell’s view is high inflation will likely subside in 2020, Reuters reported. Meanwhile, he said the Fed’s full employment goal could be met next year, if supply constraints ease as expected and if the service sector creates more jobs.

“I do think it’s time to taper. I don’t think it’s time to raise rates. We think we can be patient and allow the labor market to heal,” Mr. Powell said at a virtual appearance on Friday.

The Fed is expected to begin reducing its pandemic-driven asset purchases by next month. — L.W.T. Noble with Reuters