TDF yields decline despite lower demand

YIELDS ON term deposits continued to slip on Wednesday despite lower bids, with the market expecting monetary easing this quarter, as hinted on by the central bank chief.

Bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) amounted to P274.15 billion on Wednesday, exceeding the P160 billion on offer, according to data from the central bank.

However, this week’s total tenders slipped compared to the P276.224 billion in bids the central bank received last week against the P120 billion on the auction block.

“Total tenders amounted to P274.15 billion with oversubscriptions in all three TDF tenors as liquidity gradually returns following the holiday spending,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a note sent to reporters on Wednesday.

Banks’ tenders for the seven-day papers hit P95.282 billion in total, going beyond the P60 billion auctioned off by the central bank but failing to beat the P102.182 billion worth of tenders seen last week for the P40 billion on offer.

Rates for the one-week deposits were seen from 4% to 4.125%, a slightly wider range compared to the 4.08%-4.20% seen a week ago. The average rate for the papers clocked in at 4.0851%, slipping by 7.9 basis points (bps) from last week’s 4.1641%.

On the other hand, bids for term deposits with a two-week tenor amounted to P103.847 billion, more than double the P50 billion offered by BSP and also surpassing the P88.906 billion worth of tenders seen last week against the P40 billion on offer.

Lenders asked for returns ranging from 4% to 4.15%, a slightly wider band compared to the 4.125% to 4.2544% range seen on Jan. 8. The average rate for the 14-day papers was at 4.1065%, down 12.99 bps from the 4.2364% logged last week.

Meanwhile, tenders for the 28-day papers totaled P75.021 billion, higher than the P50 billion up for grabs but failing to beat the P85.136 billion in bids seen last week for the P40-billion offer.

Yields on the one-month papers ranged from 4.0795% to 4.22%, a slimmer band compared to the 4.125% to 4.2544% margin seen last week. This caused the average rate to settle at 4.1502%, dropping by 12.02 bps from the previous auction’s 4.2704%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the yield movements may still be on the back of signals from the central bank of impending key policy rate cuts that could be pushed as early as the first quarter of the year.

“The latest decline in BSP TDF auction yields may also still be attributed to the recent signals by BSP Governor [Benjamin E.] Diokno about a possible 0.25 [basis points] cut in local policy rates within the first quarter of 2020, especially now that the tensions already eased between the US and Iran and global oil prices already declined to new one-month lows,” Mr. Ricafort said in an e-mail.

Mr. Diokno said earlier this month that they will look at data and may consider a 25-bp cut within this quarter.

The policy-setting Monetary Board slashed rates by a total of 75 bps in 2019, partially dialing back the 175 bps in hikes implemented in 2018 due to soaring inflation.

Benchmark interest rates currently stand at four percent for the overnight reverse repurchase facility while the overnight deposit and lending rates are at 3.5% and 4.5%, respectively.

Meanwhile, last week, Reuters reported that tensions between Washington and Tehran appear to have subsided after the retaliatory strike of Iran on US forces stationed in Iraq after the US killed Iranian commander Qassem Soleimani.

US President Donald J. Trump said then that no Americans were hurt in the said attacks.

“Our great American forces are prepared for anything. Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world,” he said.

Meanwhile, Iranian Foreign Minister Mohammad Javad Zarif said the strike “concluded” their response to the killing of Mr. Soleimani. — Luz Wendy T. Noble with Reuters