YIELDS ON THE Bangko Sentral ng Pilipinas’ (BSP) term deposits inched up on Wednesday despite higher demand following the central bank’s decision to leave its policy settings untouched and also tracking the rise in US government bond rates.

Total tenders for the central bank’s term deposit facility (TDF) stood at P739.382 billion on Wednesday, beyond the P600 billion it auctioned off as well as the P634.979 billion in demand seen last week.

Broken down, the seven-day papers fetched bids amounting to P258.927 billion, surpassing the P200-billion offering as well as the P228.491 billion in tenders logged last week.

Accepted rates for the one-week TDF tenor were seen from 1.59% to 1.698%, a slimmer band compared with the 1.59% to 1.75% logged a week ago. This caused the average rate for the one-week term deposits to inch up by 1.56 basis points (bps) to 1.631% from 1.6154%.

Meanwhile, demand for the 14-day deposits amounted to P480.455 billion, beyond the P400 billion on the auction block as well as the P406.488 billion in bids logged on Feb. 10.

Banks asked for yields ranging from 1.59% to 1.7925%, a tighter margin than the 1.59% to 2% in the previous auction. This brought the two-week tenor’s average rate to 1.6443%, higher by 1.79 bps from the 1.6264% seen a week ago.

The BSP did not auction off 28-day term deposits for the 18th straight week. This follows the start of BSP’s weekly offerings of bills with the same tenor.

The TDF and BSP securities are tools used by the central bank to mop up excess liquidity in the financial system and to better guide market interest rates.

“The results of Wednesday’s auction reflect market participants’ search for yields amid ample financial system liquidity,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

Yields on the term deposits picked up after the BSP maintained benchmark interest rates last week despite the higher inflation seen in recent months, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The central bank last week kept benchmark interest rates at record lows to support the Philippine economy’s recovery from the coronavirus pandemic.

In its first policy setting for the year, the Monetary Board maintained the overnight reverse repurchase rate at a record low of 2%. The rates on the BSP’s lending and deposit facilities were likewise kept at 2.5% and 1.5%, respectively.

However, the BSP raised its average inflation forecast for the year to 4%, the upper end of its 2-4% target, from 3.2% previously.

The central bank, meanwhile, lowered its inflation forecast for next year to 2.7% from 2.9% previously.

Headline inflation reached a two-year high at 4.2% in January as prices of meat and vegetables spiked due to supply shortages.

“TDF auction yields were also higher partly due to sharp increase in the benchmark 10-year US government bonds,” Mr. Ricafort said in a text message.

Benchmark 10-year US Treasury yields rose to their highest level in a year on Wednesday in Asia as progress in passing a large fiscal stimulus package and rising inflation expectations pushed up rates.

Yields on 10-year Treasuries climbed to 1.329%, the highest since Feb. 27 last year, before pulling back to 1.3023%. — Luz Wendy T. Noble with Reuters