Yields on term deposits drop on strong demand

STRONG APPETITE for term deposits caused yields to decline on Wednesday as all tenors were oversubscribed despite the slightly higher offer volume.

The Bangko Sentral ng Pilipinas (BSP) garnered P93.395 billion in tenders for its term deposit facility (TDF) yesterday, higher than the P50 billion placed on the auction block.

This week’s total bids also surpassed the P76.055 billion received last week for a P40-billion offering.

“Average TDF rates declined across tenors relative to the previous week as all tenors were oversubscribed reflecting increased liquidity in the system,” BSP Deputy Governor Francisco G. Dakila Jr. told reporters via email.

“The offer volume for the 11 September auction was increased from the previous week’s offer of P40-billion in anticipation of higher excess liquidity to be siphoned from the financial system as a result of funds released from the deposits of the national government with the BSP,” Mr. Dakila said.

Demand for seven-day papers reached P23.7 billion, more than double the P10 billion offered by the central bank for the tenor but lower than the P24.905 billion worth of tenders received a week ago.

Rates for this tenor ranged from 4.3% to 4.4%, a narrower margin compared to last week’s 4.3%-4.992% range. The average rate settled at 4.3486%, 6.55 basis points (bp) lower than last week’s 4.4141%.

The two-week term deposits also attracted tenders worth P34.454 billion, higher than the P20-billion offered by the central bank and the P22.98 billion in bids seen last week for a P10-billion program.

Banks sought returns ranging from 4.25% to 4.465%, wider compared to the 4.4%-4.5% band last week. The average yield for the 14-day papers ended at 4.3995%, down 3.57 bps from the 4.4352% logged during the previous offering.

Meanwhile, the 28-day papers were met with demand worth P35.241 billion on Wednesday against the P20 billion auctioned off by the central bank, rising from the P28.17 billion in tenders received last week.

Accepted yields for the tenor fell between 4.4% and 4.525%, a slightly narrower range compared to the 4.4%-4.5922% band last week. This caused the one-month paper’s rate to average at 4.4907%, just a tad lower than the previous offer’s 4.495%.

“Term deposit facility yields declined across the board, with strong demand towards the shorter tenors on market expectations of dovish guidance from the policy meetings of the European Central Bank and from the US Federal Reserve next week,” a trader said in a separate email.

“Participants have likewise opted to bid for lower yields to secure their TDF placements, especially on the shorter 7- and 14-day tenors,” 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 has said the central bank is looking to cut benchmark rates by another 25 bps before the year ends.

The central bank has cut rates by a total of 50 bps 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’s Monetary Board will review its policy settings anew on Sept. 26. — L.W.T. Noble