YIELDS on the term deposit facility of the Bangko Sentral ng Pilipinas (BSP) slipped on Wednesday, with the two-week papers going undersubscribed amid the government’s ongoing retail Treasury bond offering and as market players continue to bet on rate cuts this year.

The central bank’s term deposit facility (TDF) attracted bids amounting to P342.737 billion on Wednesday, above the P310 billion on the auction block but lower than the P353.976 billion seen a week ago for the same offer.

Broken down, tenders for the seven-day papers reached P235.287 billion, higher than the P180 billion auctioned off by the central bank and the P196.214 billion in bids the previous week.

Banks asked for yields ranging from 6.5% to 6.5835%, lower than the 6.57% to 6.6% band seen a week ago. This caused the average rate of the one-week deposits to decline by 1.17 basis points (bps) to 6.5756% from 6.5873% previously.

Meanwhile, bids for the 14-day term deposits amounted to P107.45 billion, lower than the P130-billion offering and the P157.762 billion in tenders seen on Feb. 14.

Accepted rates were from 6.58% to 6.625%, a tad wider than the 6.588% to 6.625% margin recorded a week ago. With this, the average rate for the two-week deposits inched down by 0.7 bp to 6.6041% from the 6.6756% logged in the prior auction.

“The BSP maintained the total TDF volume offering at P310 billion, with the same allocation mix of P180 billion and P130 billion for the 7-day and 14-day tenors, respectively, as in the previous week,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

“The undersubscription in the 14-day TDF indicated participants’ preference for the shorter tenor in anticipation of loan releases and the settlement of the Bureau of the Treasury’s (BTr) retail Treasury bond (RTBs) issuance by end-February,” Mr. Dakila said. “Looking ahead, the BSP’s monetary operations will continue to be guided by its assessment of prevailing liquidity conditions and market developments.”

The government raised an initial P212.719 billion from its first RTB offering for 2024. This is more than nine times the P30 billion on offer.

The public offer period for the five-year retail bonds started on Feb. 13 and will run until Feb. 23, unless closed earlier by the BTr. The issue and settlement date is scheduled on Feb. 28.

The BSP has not auctioned off 28-day term deposits for three years to give way to its weekly offerings of securities with the same tenor.

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

TDF yields went down on Wednesday as market players continue to expect rate cuts from the BSP and the US Federal Reserve this year, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Odds of Fed rate cuts for 2024 have been reduced recently,” he said, adding that market players see a 60% chance of the US central bank cutting borrowing costs by June or July this year, which the BSP could match.

The Fed has kept its target rate steady at 5.25%-5.5% since the second half of 2023 after it tightened by a total of 525 bps from March 2022 to July 2023.

Meanwhile, the BSP last week kept its policy rate steady at a 16-year high of 6.5% for a third straight meeting, but said it remained cautious amid lingering upside risks to inflation.

The Monetary Board has raised benchmark interest rates by 450 bps since it began its tightening cycle in May 2022. — Keisha B. Ta-asan