Yields on 7-day deposits drop as demand surges

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By Melissa Luz T. Lopez, Senior Reporter

BANKS FAVORED week-long term deposits this week, resulting in a sustained decline in yields for these papers despite an uptrend seen for longer tenors.

Offers for Wednesday’s auction reached P60.829 billion, surpassing the P59.778-billion demand fetched last week and the P50 billion which the Bangko Sentral ng Pilipinas (BSP) placed on the auction block.

Half of these tenders went to the one-week papers, leaving the other denominations with just enough bids to match the auctioned amounts.

Banks were mostly interested to get hold of seven-day deposits, with demand rising to P30.155 billion from P29.739 billion a week ago to log past the P20 billion which the BSP wanted to sell.

In turn, this pushed the average yield for the tenor lower for the fourth straight week to a 5.0447% average. This came from a narrow 5-5.1% range of bids sought by banks, and slid by roughly two basis points from the 5.0638% fetched during the Jan. 16 offering.

Demand also improved for the 14-day papers, which saw tenders rise to P20.163 billion coming from the P17.319 billion which lenders put forward the previous week. This allowed the central bank to fully award P20 billion worth of termed papers, but pushed margins to 5.1437% from 5.129%.

Meanwhile, appetite for the 28-day tenor paled to just P10.511 billion compared to the P12.72 billion bids received last week. Still, this was enough to fill the P10 billion auction size set by the central bank.

The market players also asked for better returns for these placements, bringing average interest rates higher to 5.1547% from 5.1339% logged during the Jan. 16 exercise.

Since June 2016, the TDF has been the central bank’s primary tool in shoring up excess cash in the financial system. Through the weekly auctions, the BSP brings market and interbank rates closer to its desired range of 4.25-5.25% through the yields they accept.

BSP Deputy Governor Diwa C. Guinigundo previously noted that “tight” liquidity conditions observed during the holidays have been normalizing in recent weeks, with banks growing more comfortable to place their excess money on the short-term papers to earn some returns.

“There is clear ample liquidity in the system after the holidays. But banks wanted to go short given the Bureau of the Treasury’s tap facility so they swarmed the seven-day TDF. As a result of this more stiff competition in the shortest tenor, interest rates have levelled down,” Mr. Guinigundo said via text, noting that the trend is likely to be sustained in the coming week.

Apart from the TDF, market players can also choose to place their idle funds in government-issued debt papers, with the Bureau of the Treasury appearing to be more “aggressive” in their issuances to support greater spending targets of the Duterte administration this 2019.