YIELDS ON the central bank’s term deposit facility (TDF) continued to inch down despite lower bids on Wednesday, with the market still packed with liquidity and investors factoring in the impact of the coronavirus disease 2019 (COVID-19) outbreak.

Tenders for the TDF of the Bangko Sentral ng Pilipinas (BSP) totaled P183.468 billion on Wednesday, going beyond the P130 billion auctioned off by the central bank. However, bids this week slipped from the P170.025 billion seen on Feb. 12 versus the P170 billion on offer.

Broken down, bids for the seven-day term deposits hit P66.422 billion, higher than the P40 billion on offer and also beating the P49.66 billion in tenders logged last week for the P60 billion auctioned off by the BSP.

Banks asked for rates ranging from 3.75% to 3.93%, a thinner band compared to the 3.75% to 4.3% margin seen last week. This resulted in an average rate of 3.8301%, down by 6.42 basis points (bps) from last week’s 3.8943%.

Meanwhile, the two-week papers fetched tenders amounting to P57.718 billion, going beyond the P50 billion auctioned off by the BSP but failing to beat the P63.545 billion in bids last week for the P60 billion up for grabs.

Rates of the 14-day deposits were within 3.75% to 3.975%, a thinner margin compared to the 3.625 to 4% band logged the previous week. This caused the average rate for the 14-day papers to settle at 3.8759%, down by 0.13 bp from the 3.8772% seen on Feb. 12.

For the 28-day papers, bids totaled P59.328 billion, higher than the P40 billion up for grabs and also going beyond the P56.82 billion in bids logged last week for the P50 billion offer.

Yields on the one-month deposits ranged from 3.6525% to 3.99%, a slimmer margin compared to the 3.6875% to 4% range seen last week. With this, average rate for the 28-day term deposits ended at 3.8984%, inching down by 0.70 bp from the 3.9054% seen a week ago.

Analysts attributed the continued decrease in yields to ample liquidity in the market as well as risk-off sentiment due to the COVID-19 outbreak.

“Everything is fluid and the market is prioritizing the mitigation of the negative impacts from the COVID-19 spread,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“Although the Philippines is one of the less vulnerable Southeast Asian economies from the virus scare, the Philippines is not going to be spared from impacts,” he added.

S&P Global Ratings as well as Moody’s Investors Service have already trimmed their growth forecasts for the country this year to 6.1% from 6.2% as they took into account the possible impact of the virus on tourism and trade, among others.

Meanwhile, ING Bank NV- Manila Senior Economist Nicholas Antonio T. Mapa said the TDF developments mirror the track of government securities (GS).

“Lower yields reflect the comments of the National Treasurer [Rosalia V. de Leon] who described the market as “oozing with liquidity” with the TDF developments mirroring the local GS rally,” Mr. Mapa said in an e-mail.

The government fully awarded both its offers of Treasury bills (T-bills) and Treasury bonds (T-bonds) earlier this week, raising P20 billion in T-bills and P30 billion through the reissued 10-year T-bonds.

Mr. Mapa also noted BSP Governor Benjamin E. Diokno’s comments that only 30% of reserve requirement ratio (RRR) reductions have translated to bank lending.

The central bank last year slashed banks’ RRR by 400 bps, bringing the reserve ratios of big banks, thrift and rural lenders to 14%, four percent, and three percent, respectively.

“With loan demand still not as robust as we would want to it to be, funds will simply stay in the local bond market or return to BSP’s overnight and term windows,” Mr. Mapa said.

BSP data showed that bank lending expanded at a quicker pace of 10.9% in December from 10.1% in November. Inclusive of reverse repurchase agreements, bank lending rose 10.9%, also quicker compared to the 10.2% print in the preceding month.

For the next auctions, UnionBank’s Mr. Asuncion said yields may continue to drop unless there are positive developments regarding the COVID-19 outbreak.

“Rates may continue to decline until the dust settles whether the pathogen spread is clearly controlled (or there is some semblance of sure decrease of infections),” he said.

Aside from the developments on the outbreak, ING’s Mr. Mapa said yields at the next auctions will also be dependent on the auction size set by the BSP, “which will most likely be trimmed further.” — L.W.T. Noble