YIELDS on term deposits slightly recovered on Wednesday amid improved government spending and market anticipation for yet another rate cut from the US Federal Reserve.

The Bangko Sentral ng Pilipinas (BSP) saw total bids of P100.489 billion for its term deposit facility (TDF) on Wednesday, surpassing the P90 billion on offer.

However, this was lower than the P114.510 billion in tenders the central bank saw last week for the P90 billion it auctioned in total.

Tenders from lenders for the seven-day notes were seen at P32.563 billion, oversubscribed against the P30 billion on offer but slipping from last week’s P39.185 billion in bids against P30 billion on the BSP’s auction block.

Accepted yields for the tenor ranged from 4.138% to 4.225%, a thinner band than last week’s 4.12-4.25% margin. This yielded an average rate of 4.2055%, lower by 2.09 basis points (bps) compared to last week’s 4.2264%.

Meanwhile, the fourteen-day papers attracted bids amounting to P30.240 billion, still higher the P30 billion the BSP placed on the auction block. However, it failed to go beyond the P35.52 billion in bids on a $30 billion offer volume last week.

Lenders opted for returns between 4.15% and 4.3%, a slightly wider margin than the previous week’s 4.15-4.283% band. This led the average rate for the two-week notes to hit 4.248%, inching up by 1.32 bp from last week’s 4.2348%.

On the other hand, the 28-day term deposits received tenders worth P37.686 billion against the P30 billion on offer. This is lower compared to the P39.805 billion in tenders seen last week for the BSP’s auction of P30 billion.

Accepted yields for the tenor were seen at 4.18% to 4.45%, increasing from the previous auction’s yields which ranged from 4.16-4.2785%. This brought the tenor’s average rate to 4.248% higher by 2.53 bps from last week’s 4.2227%.

The TDF is the central bank’s primary tool to shore up excess liquidity in the financial system and to better guide market interest rates.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the recovery in the yields of some tenors to recent local data releases, market anticipation for a further US Federal Reserve rate cut, and the stronger performance in the local unit against the dollar recently.

“BSP TDF auction yields were mostly slightly higher a day after the strong government expenditures growth data that resulted to the widest budget deficit data on record though offset by the possible Fed rate cut on Oct 30,” Mr. Ricafort said via email.

“The financial markets are anticipating a possible cut in the key US short-term interest rates which could possibly lead to a corresponding cut in key short-term interest rates for some central banks around the world, including a possible cut on local policy rates on the next BSP monetary policy-setting meeting on November 14,” he added.

Data released by the Bureau of Treasury on Thursday showed that national government expenditures climbed by 39.01% to P415.1 billion in September from the P298.6 billion a year earlier, its best performance since the 42.7% increase recorded in April last year.

Primary spending — which excludes interest payments and includes infrastructure expenditures — for the month climbed 39.89% year-on-year to P372 billion, while interest payments totaled P43.1 billion, up 31.88% from a year earlier, primarily due to coupon payments for reissued bonds and the five-year retail treasury bonds issued in March.

The BSP’s latest policy rate cut on Sept. 26 has brought down overnight reverse repurchase (RRP) overnight deposit and lending by 25 basis points (bps) to four percent, 3.5% and 4.5%, respectively. Two prior rate cuts on May 8 and Aug. 8 have already slashed 50 bps earlier in the year.

BSP Governor Benjamin E. Diokno earlier this month hinted the central bank is likely done for rate cuts in 2019, but is still closing its doors for further reduction in banks’ reserve requirement ratio. — LWTN