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Yields on term deposits climb to fresh highs amid strong demand

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By Melissa Luz T. Lopez, Senior Reporter

YIELDS ON term deposits offered by the central bank soared to fresh highs yesterday, as demand for shorter maturities surged ahead of the upcoming holidays.

Banks wanted to place as much as P120.72 billion in term deposits offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday, well above the P100 billion it placed on the auction block. The amount is however little changed from the P121.077 billion in bids received a week ago versus a P110-billion offer.

Players sought for bigger returns across all tenors, even as demand mostly went to the shorter-termed deposits.

Tenders for the seven-day papers reached P62.078 billion, surging from the P48.206 billion bids seen a week ago and surpassing the P40 billion which the central bank wanted to sell. Despite the abundant bids, the average yield still climbed to 3.7006% from 3.693% a week ago as banks maximized higher interest rates and asked for returns ranging from 3.6-3.725%.

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Meanwhile, the 14-day tenor saw steady demand at P45.367 billion, just a tad lower than the P46.966 billion offers a week ago and settling above the P40-billion offer. Still, the average interest rate climbed to 3.6916% from 3.6683% fetched during the May 30 auction.

On the other hand, appetite for the 28-day deposits waned to P13.275 billion, roughly half of the P25.905 billion worth of bids seen the previous week. This fell short of the P20 billion which the BSP wanted to sell.

In turn the average yield climbed by some 7.5 basis points to 3.7179%.

The term deposit facility (TDF) is the central bank’s main tool in capturing idle funds in the local financial system.

The BSP actively tweaks auction amounts each week in order to bring market and interbank rates within its desired spread, which currently ranges from 2.75-3.75% following a rate hike announced on May 10.

RETAIL BONDS AFFECT DEMAND
“The higher demand for the 7-day TDF is likely due to banks preparing for the settlement of the RTB (retail Treasury bonds) on June 13 as well as the two non-working days next week,” BSP Deputy Governor Diwa C. Guinigundo said in a text message.

He is referring to the non-working holiday on Tuesday for Independence Day.

On the other hand, Malacañang has yet to declare work suspensions for June 15 to mark the end of Ramadan.

The government is in the middle of a public offering of RTBs until June 8, with the three-year debt papers enjoying “good reception” thus far. The offering raised P66 billion on its first day on May 30, already well above the P30-billion program.

Mr. Guinigundo also noted that banks have been preferring shorter lock-in periods over the past few days. He pointed out that banks “have been parking their funds” in the BSP’s overnight deposit and reverse repurchase facilities worth a total of P400 billion.

A fresh cut in bank reserves which took effect on June 1 unleashed at least P90 billion from bank vaults, which players can use for additional lending and other financial transactions.

The central bank will again offer P100 billion worth of term deposits next week, split into P40 billion each for the one-week and two-week tenors and P20 billion under a month-long tenor.

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