YIELDS ON term deposits ended mixed on Thursday as banks preferred the longer tenors in anticipation of a long weekend as well as the release of the central bank’s August inflation forecast next week.

Bids for the central bank’s term deposit facility (TDF) reached P102.994 billion on Thursday, lower than the P137.141 billion received during last week’s auction but still above the P100 billion the Bangko Sentral ng Pilipinas (BSP) wanted to sell.

Despite this demand, the BSP only awarded P90.875 billion on Thursday compared to P100 billion it awarded the previous auction.

Broken down, bids for six-day notes totalled P35.82 billion, below the P40 billion offered on Thursday as well as last week’s P51.252 billion worth of tenders.

Yields asked for this tenor ranged from 4.3% to 4.55%, a narrower margin compared to last week’s 4.25-4.55%. The average rate settled at 4.4597%, 2.08 basis points (bp) higher than last week’s 4.4389%.

For the 13-day papers, tenders reached P26.055 billion, also failing to fill the P30 billion the central bank had on offer and also lower than last week’s P40.747-billion bids.

Banks sought yields from 4.3% to 4.65% versus last week’s 4.25% to 4.59% range, then averaged at 4.4938%, inching up 0.33 bp from the 4.4905% fetched during the previous auction.

On the other hand, the 27-day deposits were oversubscribed as bids reached P41.119 billion, well above the central bank’s P30-billion offering but still lower than last week’s P45.119 billion.

Accepted yields ranged from 4.3% to 4.55%, slightly narrower than last week’s 4.25%-4.6% margin, and settled at an average of 4.4613%, dropping 3.48 bps from 4.4961% previously.

The tenors were adjusted as local financial markets are closed on Monday is observance of National Heroes’ Day.

The TDF is the central bank’s main instrument to siphon excess liquidity in the financial system and to better guide market interest rates.

The central bank’s Monetary Board at its last meeting slashed policy rates by 25 bps. Current interest rates now range from 3.75% to 4.75%.

“The undersubscription in the 6-day and 13-day TDF tenors and oversubscription in the 27-day tenor reflected banks’ appetite for longer-tenored term deposits,” BSP Deputy Governor Francisco G. Dakila, Jr. said in an e-mail yesterday.

At the same time, Mr. Dakila said, the results of the auction indicated banks’ preference to hold on to their cash in view of the long weekend and month-end liquidity requirements.

“Nonetheless, the total tenders received across all TDF tenors at about P103 billion were in line with the BSP’s liquidity forecast for the week.”

In a separate interview, a bond trader said that banks flocked the longer tenor to take advantage of higher returns ahead of the release of the BSP’s August inflation projection next week.

“Local yields remained titled on the downside on expectations of possible sub-2% headline inflation this quarter as well as forthcoming reductions in the BSP policy rate and in the reserve requirement ratio (RRR),” the trader said in an e-mail interview.

Reserve quotas now stand at 16% for big banks and 6% for thrift banks following the last round of the 200-bp multi-phased reduction in all RRRs last July 26.

BSP Governor Benjamin E. Diokno last week said the Monetary Board will “pre-announce” its plans to slash banks’ RRR on a quarterly basis. — Mark T. Amoguis

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