TDF yields up on bets of rising inflation

YIELDS ON term deposits went up amid fewer bids, with the market factoring in an uptick in inflation after two months of slowdown.

Tenders for the central bank’s term deposit facility (TDF) amounted to P175.528 billion, going beyond the P170 billion placed on the auction block, data from the Bangko Sentral ng Pilipinas (BSP) showed.

However, this week’s tenders fell compared to the P180.328 billion in bids the BSP received last week for the P180 billion on offer.

Banks’ tenders for the seven-day term deposits amounted to P56.572 billion, lower than the P60 billion the BSP auctioned off and also falling from the P62.442 billion in bids seen on Nov. 27 for the P70 billion on offer.

Yields for the tenor were seen from 4.125% to 4.45%, a slimmer range compared to last week’s 4.07-4.45% band. This resulted in an average rate of 4.2834%, an increase of 3.26 basis points (bps) from last week’s 4.2508%.

Meanwhile, the 14-day papers attracted tenders worth P67.388 billion, surpassing the P60 billion on offer and also beating the P53.975 billion in tenders seen last week against the P50 billion on the auction block.

Lenders asked for returns ranging from 4.235% to 4.4188%, a narrower band compared to the 4.14-4.4566% range last week. The average rate for the two-week tenor was at 4.331%, down 1.14 bps from the 4.3424% logged on Nov. 27.

For the 29-day deposits, tenders amounted to P51.568 billion, slightly higher than the P50 billion offered by the BSP but failing to beat the P63.911 billion in tenders garnered last week for the P60 billion auctioned off by the central bank.

Rates for the one-month papers ranged from 3.5% to 4.4948%, a wider band versus the previous auction’s 4.19-4.5%. This caused the one-month paper’s rate to average at 4.3522%, higher by 1.98 bps from last week’s 4.3324%.

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

Economists attributed the TDF auction results to the market expectations of an increase in inflation in November.

“The lower tender this week compared to last week’s auction may have indicated the market’s anticipation of higher price levels and that inflation’s base effect from last year is expected to recede. The market may now be looking at longer positions as inflation normalizes further,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

This was echoed by Rizal Commercial Banking Corp. chief economist Michael L. Ricafort.

“The latest BSP TDF auction yields were mostly higher by two to three basis points week on week, largely amid expectations of some pick up in inflation rate. Local interest rate benchmarks are fundamentally correlated with the direction/trend in local inflation rate,” Mr. Ricafort said.

BusinessWorld’s poll of 16 economists last week yielded a median estimate of 1.2% for the November inflation. This is at the lower end of the 0.9-1.7% forecast range given by the BSP Department of Economic Research last week.

In October, inflation slowed to 0.8% from the three-year low of 0.9% logged in September. Both figures came on the back of base effects from last year’s 6.7% overall increase in commodity prices in September and October 2018.

The Philippine Statistics Authority will report November inflation data today. — Luz Wendy T. Noble