TDF yields climb after BSP hike

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By Melissa Luz T. Lopez, Senior Reporter

YIELDS ON term deposits surged yesterday as banks took advantage of the higher interest rates set by the central bank, with appetite still skewed towards the shortest tenor.

Wednesday’s auction was met by weak demand from banks as they were only willing to place P92.636 billion under the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP). This barely filled the P100-billion offer and slipped further from the P100.634 billion bids received a week ago.

Players betted big on the week-long instruments which accounted for about half the total tenders, leaving the two-week and one-month tenors undersubscribed for the third straight week.

The seven-day papers received P45.831 billion in total offers, surpassing the P40 billion on the auction block but dropping from the P64.409 billion bids seen the week prior. This pushed yields higher to average 3.7523%, some six basis points (bp) higher than the 3.6927% fetched during the June 20 exercise.

Meanwhile, appetite for the 14-day term deposits remained tepid. The BSP’s P40-billion offer was met by P31.99 billion worth of tenders, which slightly improved from the P28.016 billion submitted last week.

Despite this, banks asked for wider margins ranging from 3.7-4%, as they maximized the higher spreads set by the central bank. As a result, the average rate surged to 3.8689%, up 13.5bp from 3.7342% previously.

The 28-day tenor also saw a partial recovery in demand as it shored up P14.815 billion worth of bids from P8.209 billion a week ago. Still, this failed to fill the P20 billion which the BSP wanted to sell. This pushed the average yield to 3.8471%, which is 11.5bp higher from the 3.7326% fetched last week.

The TDF is the central bank’s main tool in arresting excess money supply in the financial system. The BSP actively adjusts auction amounts each week in order to bring market and interbank rates within its desired spread.

Last week, the Monetary Board announced a fresh 25bp hike in policy rates to rein in inflation expectations, which comes back-to-back with a similar move in May.

Central bank officials earlier said that banks have been biased towards shorter tenors as they avoid keeping their funds locked in for too long, at a time of uncertainties in the domestic and global financial markets.

Over the past weeks, BSP Deputy Governor Diwa C. Guinigundo said market players have chosen to place more funds under overnight facilities rather than lock down their cash for several days or weeks under the TDF.

The same trend has been observed with government-issued debt papers, with investors crowding Treasury bills over the longer-term bonds floated every week.