TDF yields rise on Fed official’s hawkish remarks

YIELDS on the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) increased on Wednesday as the offer was undersubscribed after a US Federal Reserve official said the central bank should consider aggressive rate hikes amid soaring inflation and with the peso retreating versus the greenback.

Total bids for the central bank’s term deposits reached P336.743 billion, short of the P430-billion offer and also lower than the P458.91 billion in tenders last week.

Broken down, the seven-day papers fetched bids amounting to P152.652 billion, lower than the P180 billion auctioned off by the BSP. It was also less than the P187.396 billion in tenders logged the previous Wednesday.

Banks asked for yields ranging from 1.85% to 2.19%, wider than the 1.825% to 2% band a week ago. This caused the average rate of the one-week paper to rise by 2.43 basis points (bps) to 1.9438% from 1.9195%.

Meanwhile, demand for the 14-day term deposits amounted to P184.091 billion, below the P250-billion offering as well as the P271.514 billion in tenders recorded a week ago.

Accepted rates for the papers were from 1.5% to 2.19%, wider than the 1.8% to 1.965% margin seen on April 13. With this, the average rate of the two-week paper inched up by 0.49 bp to 1.9245% from 1.9196% in the prior auction.     

The central bank has not auctioned 28-day term deposits for more than a year to give way to its weekly offering of securities with the same tenor.

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

Term deposit yields rose as US Federal officials continue to stress their plans to continue monetary policy tightening this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

St. Louis Federal Reserve Bank President said monetary authorities should be open to a series of 75-bp increases in benchmark rates to address soaring inflation, Reuters reported.

In March, US inflation surged to a 40-year high of 8.5%, mainly due to record high fuel costs.

A Reuters poll last week showed analysts are estimating 50-bp increases in Fed interest rates for its May and June review to continue addressing inflation. These analysts also expect a 40% probability of recession by 2023.

TDF rates also increased due to the continued depreciation of the peso, Mr. Ricafort added.

The peso closed at P52.03 per dollar on Wednesday last week, depreciating by 44 centavos from its P51.59 finish on April 8. Philippine financial markets were closed on April 14-15 in observance of Maundy Thursday and Good Friday.

At its P52.46-a-dollar close on Tuesday, the local unit has weakened by 2.86% from its end-2021 finish.

Analysts have attributed the peso’s recent depreciation to risk-off sentiment caused by the Fed’s policy tightening as well as the war in Ukraine and its impact to fuel prices. — L.W.T. Noble with Reuters