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TDF yields drop on bets of more rate cuts

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TERM DEPOSITS continued to fetch lower yields as the markets brace for the upcoming holidays and as they look forward to 2020, with the central bank eyeing at least 50 basis points (bps) in rate cuts.

Tenders for the central bank’s term deposit facility (TDF) totaled P165.274 billion on Wednesday, surpassing the P150 billion on offer, according to data from the Bangko Sentral ng Pilipinas (BSP).

This week’s tenders also went beyond the P181.538 billion in bids the BSP received last week for the P180 billion placed on the auction block.

“Total TDF offer volume in today’s auction was reduced…amid expected increase in demand for cash ahead of the holidays,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

Banks’ tenders for the eight-day term deposits reached P73.831 billion, higher than the P60 billion auctioned off by the BSP and also beyond the P66.835 billion in bids seen on Dec. 11.

Yields for the one-week paper ranged from 4.2% to 4.35%, a slimmer margin compared to last week’s range of 4.125-4.4%. This resulted in an average rate of 4.2724%, slipping by 3.16 bps from last week’s 4.304%.

Meanwhile, the 15-day papers saw total bids of P41.519 billion, failing to fill the P50 billion on offer and also lower than the P69.993 billion bids seen last week for the P60 billion the BSP offered.

Lenders sought returns from 4.2% to 4.4099%, a wider band compared to the 4.3% to 4.4055% range last week. With this, the rate for the two-week deposits averaged at 4.3288%, inching up by 0.39 bp from the 4.3249% logged the previous auction.

On the other hand, tenders for the 28-day deposits amounted to P49.924 billion, well above the P40 billion offered by the central bank and also beating the P44.71 billion in tenders seen last week for the P60 billion placed on the auction block.

Rates of the one-month papers clocked in from 4.2750% to 4.4125%, a slimmer margin compared to last week’s 4.29% to 4.49%. This resulted in an average rate of 4.3436%, lower by 0.6 bp from last week’s 4.3496%.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the lower yields came as the market positions ahead of the holidays.

“Expect the market to slant sideways as the year comes to a close. Market moving events have to wait for the new year,” Mr. Asuncion said in an e-mail.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the yields this week came after BSP Governor Benjamin E. Diokno’s hints of at least 50 bps worth of rate cuts next year.

“Most BSP TDF auction yields today were slightly lower, consistent with the continued positive reaction by the local financial markets after the recent signals from BSP Governor Diokno about a possible 50-basis-point cut in 2020 that also led to some easing in local interest rate benchmarks since last week,” he said in an e-mail.

Speaking to reporters on Tuesday evening, Mr. Diokno said the BSP gives “forward guidance” and that it looks to cut “interest rates [by] at least 50 bps]” in 2020.

“But on the interest rates at least 50 bps for next year. Kasi (Because) remember we have to raise interest rates by 175 bps [in 2018],” Mr. Diokno said.

“But we’re observing what the other central banks are doing. Eh parang cutting pa rin (It looks like they’re still cutting)…so babantayan natin (we will observe)… but at the moment, we are comfortable where we are,” he added.

The central bank cut benchmark rates by a total of 75 bps this year through three 25-bp reductions done in May, August, and September. This partially dialed back the 175 bps in hikes implemented in 2018 due to elevated inflation.

Currently, policy rates are at four percent for the BSP’s overnight reverse repurchase facility, 3.5% for overnight deposit, and 4.5% for overnight lending.

While auctions for TDF regularly fall on Wednesdays, next week’s auction will be moved to Dec. 26 to make way for Christmas Day. — Luz Wendy T. Noble

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