TDF yields rise on weak demand

By Mark T. Amoguis, Senior Researcher

WEAK APPETITE for term deposits pushed yields higher on Wednesday as bids for the facility continued to fall below the central bank’s offer for this week.

The central bank received bids amounting to just P76.753 billion for its term deposit facility (TDF) on Wednesday, falling short of the P80 billion it wanted to sell.

This amount was also lower than the P102.994 billion the Bangko Sentral ng Pilipinas (BSP) received last week against a P100-billion offering.

The BSP only awarded P72.431 billion on Wednesday compared to the P91.875 billion it awarded in the previous auction.

Broken down, demand for seven-day papers amounted to P19.228 billion, failing to fill the P20 billion on offer and also declining from last week’s P35.820 billion worth of bids for the P40-billion offering.

Rates for this tenor ranged from 4.25% to 4.74%, a wider margin compared to last week’s 4.3-4.55% range. The average rate settled at 4.4852%, 2.55 basis points higher than last week’s 4.4597%.

Appetite for the 28-day deposits was likewise lower at tenders reached only P33.203 billion against the P40-billion offer. This amount was also lower than the P41.119 billion tendered last week for the BSP’s P30-billion offer volume.

Accepted yields under this term played between 4.375% and 4.7%, also wider than last week’s 4.3-4.55% range. The average settled at 4.4832%, up 2.19 bps from 4.4613% previously.

Banks meanwhile flocked the 14-day papers as bids amounted to P24.322 billion against the BSP’s offering of P20 billion, with the central bank only awarding the programmed amount despite the oversubscription. However, the total tenders were still lower than the previous session’s P26.055 billion tenders for a P30-billion program.

Rates sought by lenders ranged from as low as 4.375% to a high of 4.6% compared to the 4.3-4.65% margin seen last week. The yield for this tenor averaged at 4.375%, higher by 1.17 bps from 4.4938% fetched the previous auction.

“Demand for TDF yields weakened on the 7-day and 28-day tenors as the maturities coincides the release of the official August inflation report next week and the monetary policy decisions from the US Federal Reserve and the Bangko Sentral ng Pilipinas later this September,” a bond trader said via email.

“The timing of these critical market movers might have influenced strong demand for the 14-day facility,” the trader added.

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.

BSP Governor Benjamin E. Diokno said on Tuesday that the central bank is looking to cut benchmark rates by another 25 bps before the end of the year.

The central bank has cut interest rates by a total of 50 bps so far this year — by 25 bps each on May 9 and Aug. 8 — to 4.25% for the overnight reverse repurchase rate, 4.75% for overnight lending and 3.75% for overnight deposit, partially dialing back the 175-bp cumulative hikes triggered last year by successive multi-year high inflation that peaked at a nine-year high.

The BSP is also looking to trim banks’ reserve requirement ratios further, Mr. Diokno said.