YIELDS ON term deposits offered by the Bangko Sentral ng Pilipinas (BSP) were higher on Wednesday, tracking rates of US government bonds on hopes for a fresh stimulus to prop up the world’s largest economy amid the coronavirus pandemic.

Total tenders for the BSP’s term deposit facility (TDF) reached P518.88 billion on Wednesday, higher than the P490 billion on the auction block. However, this was lower than the P574.19 billion in bids logged during the previous auction against a P470-billion offering.

Broken down, bids for the seven-day deposits totaled P225.955 billion, higher than the P220-billion offering but failing to beat the P254.485 billion worth of tenders seen a week ago.

Accepted rates for the one-week paper ranged from 1.835% to 2%, a wider and higher band compared with the 1.8% to 1.9% logged on Oct. 14. With this, the average rate for the tenor settled at 1.8813%, increasing by 3.47 basis points (bps) from the 1.8466% seen at last week’s auction.

Meanwhile, demand for the 14-day papers amounted to P292.925 billion, beyond the P270 billion on the auction block but lower than the P319.705 billion in bids last week for a P250-billion offering.

Banks asked for yields ranging from 1.835% to 2.24%, up from the 1.78% to 1.87% band a week ago. This caused the average rate to settle at 1.9051%, increasing by 6.25 bps from the 1.8426% fetched at last week’s offering.

The 28-day papers were not offered for this week’s auction. BSP Governor Benjamin E. Diokno has said the TDF tenor will eventually be phased out as the central bank last month started offering bills of the same term.

The TDF and the BSP’s securities are among the central bank’s main tools to gather excess liquidity in the financial system and to better guide market interest rates.

“The results of the TDF auction continue to show that liquidity in the financial system is ample,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The higher TDF yields seen at this week’s auction followed the trend seen in US government bonds, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said yesterday.

“US government bond/Treasury yields are lately among four-month highs amid optimism on possible US stimulus that could entail more borrowings by the government and more supply of bonds that lead to higher bond yields,” Mr. Ricafort said in a text message.

Benchmark US Treasury yields hit four-month highs on Tuesday and the yield curve steepened as hopes grew that US lawmakers will agree on a deal for new stimulus, Reuters reported.

US President Donald Trump on Tuesday pushed for a comprehensive COVID-19 relief package, and said he would accept a deal worth more than $2.2 trillion despite opposition to large spending measures among his fellow Republicans in the US Senate.

Benchmark 10-year note yields rose four basis points on the day to a high of 0.801%, the highest since June 10. The yields have traded in a tight range from 0.50% to 0.80% since April, with the exception of a brief spike to 0.96% in early June.

The yield curve between two-year and 10-year notes steepened to 65 bps, the steepest since June 8.

Some investors are betting long-dated yields will rise after the Nov. 3 presidential election on the likelihood of greater fiscal spending to boost the economy, with Democrats expected to support a larger package if they win a majority in the Senate.

Mr. Ricafort said term deposit yields also rose amid lower bids after the central bank increased its offer volume.

“The higher TDF auction offering in recent weeks may be used to mop up excess liquidity,” he said. — LWTN with Reuters

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