Yields on term deposits inch up as budget deficit widens in July

YIELDS ON the term deposits auctioned off by the Bangko Sentral ng Pilipinas (BSP) rose on Wednesday following the wider budget deficit as of July amid expenses for the government’s pandemic response and declining tax revenues.

Total tenders for the BSP’s term deposit facility (TDF) reached P502.084 billion on Wednesday, going beyond the P310 billion on the auction block. This also beat the P391.67 billion in bids seen last week for the P270-billion offering.

Broken down, the seven-day papers saw bids totaling P171.969 billion, higher than the P130-billion offering as well as the P145.84 billion in tenders logged on Aug. 26.

Accepted yields for the one-week term deposits ranged from 1.75% to 1.9%, slightly wider than the 1.75% to 1.88% band recorded a week ago. This brought the average rate for the tenor to 1.8129%, inching up by 2.95 basis points (bps) from the 1.7834% seen in the previous auction.

For the 14-day term deposits, demand totaled P225.55 billion, surpassing the P130-billion offering and the P163.54 billion in tenders logged a week ago for the P110 billion on the auction block.

Rates for the two-week papers fell within 1.789% to 1.9%, a wider margin compared to the 1.76% to 1.95% recorded the previous week. This brought the average rate of the 14-day deposits to 1.8424%, increasing by 1.07 bps from the 1.8317% quoted last week.

On the other hand, tenders for the 28-day papers amounted to P104.565 billion, more than double the P50 billion up for grabs as well as the P82.29 billion in tenders seen last week for the P50 billion on offer.

Banks asked for yields ranging from 1.795% to 1.8998%, a narrower margin compared to the 1.7655% to 1.9518% seen a week ago. With this, the tenor’s average rate stood at 1.8613%, rising by 1.32 bps from the 1.8481% logged a week ago.

The TDF is the central bank’s main tool to gather excess liquidity in the financial system to better guide market interest rates.

“The auction results continue to show that financial system liquidity remains ample,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The slight uptick in TDF yields came on the back of data showing a wider budget deficit and higher government borrowings programmed for 2021, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

The government’s budget deficit widened to a record P700.6 billion in the first seven months of the year, nearly six times the P117.9 billion seen a year ago, data from the Bureau of the Treasury released last week showed. This came on the back of increased expenses due to the pandemic and lower revenues from tax collections due to a slowdown in economic activity.

Meanwhile, the government is targeting to borrow P3 trillion in 2021 to finance more than half of its spending plan and plug its widening deficit. — L.W.T. Noble