TDF yields go up as bids decline after record retail bond issuance

YIELDS ON THE term deposits offered by the Bangko Sentral ng Pilipinas (BSP) rose on Wednesday as bids declined following the record-high amount raised from retail Treasury bonds (RTBs) last week.

Total bids for the BSP’s term deposit facility (TDF) hit P264.94 billion on Wednesday, lower than the P320-billion offering. It was also smaller than the P526.49 billion in tenders logged the previous week for the P380 billion on the auction block.

Broken down, the seven-day deposits fetched bids amounting to P98.58 billion, lower than the P140-billion offering as well as the P196.23 billion in tenders recorded on Aug. 5.

Rates for the one-week tenor ranged from 1.75% to 2.25%, a wider band than the 1.75% to 1.756% margin seen last week. This caused the average rate of the papers to settle at 1.781%, increasing by 2.68 basis points (bps) from the 1.7542% seen last week.

Meanwhile, the 14-day term deposits attracted tenders worth P104.13 billion, lower than the P130 billion auctioned off and the P247.365 billion in bids last week for the P180 billion up for grabs.

Banks asked for returns ranging from 1.75% to 2.625%, a wider margin than the 1.75% to 1.77% seen last week. This brought the average rate of the two-week deposits to 1.8658%, rising by 10.92 bps from the 1.7566% logged during last week’s auction.

For the 28-day papers, demand stood at P62.23 billion, surpassing the P50 billion on offer but lower than the P82.895 billion in tenders seen the previous week for the P80 billion on the auction block.

Accepted yields for the one-month deposits ranged from 1.7527% to 1.8125%, wider than the 1.75% to 1.799% band the previous week. Following this, the average rate for the tenor settled at 1.777%, inching up by 1.15 bps from the 1.7655% recorded a week ago.

The TDF is the central bank’s primary tool to mop up excess liquidity in the financial system to better guide market interest rates.

“The TDF auction results reflected in part the temporary impact of the scheduled settlement of the retail treasury bonds as well as the market participants’ reaction to recent developments such as the release of the lower-than-expected Q2 2020 GDP (gross domestic product) data,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The government raised a record P516.3 billion from its three-week RTB offer which closed on Friday. The proceeds will be used for the government’s coronavirus response as tax collections fall amid slowing economic activity.

The country’s GDP shrank by 16.5% in the second quarter after the 0.7% contraction in the first three months, plunging the economy into a recession.

Recent signals from the central bank chief that rates are likely to be maintained in the near term also caused TDF yields to go up, said Rizal Commercial Banking Corp. Chief Economist Michael R. Ricafort.

BSP Governor Benjamin E. Diokno on Monday said there is “no compelling reason” right now for further rate cuts as its previous easing moves have yet to be digested by the market.

The central bank chief said keeping rates unchanged for the next few quarters is a “possibility” as the Monetary Board’s previous moves were anticipatory in nature.

The BSP has slashed benchmark rates by 175 bps so far this year, bringing the rates on its overnight reverse repurchase, lending and deposit facilities to record lows of 2.25%, 2.75% and 1.75%, respectively.

The Monetary Board will review its policy settings on Aug. 20. — Luz Wendy T. Noble