Yields on term deposits go up

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term deposit facility (TDF)

YIELDS fetched on term deposits climbed anew this week as the central bank reduced the amounts offered during Wednesday’s auction.

Demand for the short-term placements softened to P81.663 billion, sustaining a downtrend from the P100.813 billion in bids received a week ago but still higher than the adjusted P70-billion offering for the term deposit facility (TDF).

Appetite eased across the three tenors on Wednesday, accompanied by higher returns sought by banks.

The seven-day tenor saw the biggest decline in bids from market players, which came ahead of the long weekend for All Saints’ Day and All Souls’ Day.

The week-long deposits shored up P44.325 billion in offers, down from P53.642 billion last week although still higher than the P40 billion the Bangko Sentral ng Pilipinas (BSP) wanted to sell. In turn, rates sought by banks rose to average 4.7249% compared to 4.7196% a week ago.

The 14-day papers also saw softer demand worth P23.425 billion, above the P20 billion on the auction block but down from last week’s P28.506 billion. Players pushed rates higher to average 4.7631%, coming from a narrow range of 4.7-4.8% and up from 4.7553% previously.

Tenders for the 28-day instruments also eased this week, going down to P13.913 billion from P18.665 billion received a week ago. This matched a reduction in the offer amount to P10 billion from P20 billion during the Oct. 24 exercise.

As a result, the average yield climbed to 4.8798%, hovering close to the 5% ceiling rate set by the central bank. Banks asked for rates ranging from 4.8-4.938%, which led to an average that is higher than the 4.8493% fetched last week.

The TDF has been the central bank’s primary instrument to capture excess money supply and influence short-term rates in the financial system. Through the weekly auctions, the BSP can bring market and interbank closer to its desired range by setting the standard for short-term instruments using the margins that they pay to banks for these placements.

Higher TDF placements prod banks to also raise interest rate margins for their products, benchmarked on the 4-5% interest rate corridor of the central bank.

For next week, the central bank is hiking its total offer under the term deposit facility to P100 billion — P50 billion for the seven-day tenor, P30 billion for the 14-day instruments, and P20 billion for the 28-day deposits. — Melissa Luz T. Lopez