By Melissa Luz T. Lopez, Senior Reporter
YIELDS on term deposits fell across the board yesterday, mirroring a downtrend in bond yields as liquidity improved in the market.
Banks offered to park P59.778 billion under the term deposit facility (TDF) on Wednesday, slipping from the P73.514 billion in bids received a week ago but settling above the P50 billion which the Bangko Sentral ng Pilipinas (BSP) offered to sell.
Demand softened across all tenors and even went below offer for the two-week instruments, but this did not stop the lenders from asking for lower interest rates, with average yields down by as much as three basis points (bp).
Bids for the seven-day placements totalled P29.739 billion, easing from the P35.34 billion received during the previous auction but maximizing the P20 billion placed on the auction block.
Despite the softer demand, banks asked for lower yields ranging from 4.9-5.125% to average at 5.0638%, lower than the 5.0706% seen the previous week.
The same trend was seen for the 14-day papers, as market players put forward lower bids at P17.319 billion coming from last week’s P23.297 billion. This failed to fill the BSP’s P20-billion offering.
Still, interest rates averaged 5.129%, falling from the 5.153% fetched during the Jan. 9 exercise.
The 28-day tenor also saw lower tenders this week, which inched down to P12.72 billion from P14.877 billion a week ago. Banks wanted to be paid returns ranging from 5-5.2% to result in a 5.1339% average, also slipping from 5.1694% previously.
The TDF has been the central bank’s main tool in mopping 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 which they accept.
The decline in yields came just as Treasury bills issued by the government saw yields drop for various tenors.
BSP Deputy Governor Diwa C. Guinigundo said the latest auction results show that money supply conditions are going back to normal.
“After a seemingly tight liquidity condition given the undersubscription during the holidays, we saw large oversubscription right after New Year as funds withdrawn during Christmas and New Year began to return to the banks themselves,” Mr. Guinigundo said in a text message to reporters.
“I said and we are seeing this today, in the next few weeks, as more and more funds are invested in TDF’s, there would be less and less oversubscriptions.”
Mr. Guinigundo also pointed out that the “aggressive” fund raising being done by the Treasury also helped captured excess funds in the financial system, as seen through its above-program issuances so far this month. The bureau even opened a tap facility and over-the-counter sales to shore up more funds from willing investors last Monday, taking advantage of the big drop in interest rates.
Analysts at First Metro Investment Corp. said on Tuesday easing inflation coupled with slimmer chances of rate hikes in the United States will drive down domestic bond yields by 50 bps this 2019, making it cheaper to borrow funds from the market.
For next week, the central bank will again offer P50 billion in term deposits — P20 billion apiece for the seven- and 14-day and P10 billion in the 28-day tenor.