TDF offerings undersubscribed
THE CENTRAL BANK’S auction of term deposits was undersubscribed yesterday after a higher volume was offered, but the tenors still fetched higher yields even as trust companies reduce their placements under the facility.
Thursday’s auction under the term deposit facility (TDF) saw the record-high offer met by relatively smaller demand, although average rates continued to tick higher.
The Bangko Sentral ng Pilipinas (BSP) decided to raise the total auction volume to P180 billion from P130 billion after the weekly auctions saw total bids posted by banks and trust entities hit well above the amounts offered under the week- long and month- long instruments six months since the weekly TDF offers started.
The six-day tenor saw yields inch up to 2.6059% — higher than the previous week’s 2.5249% and above the 2.5% floor of the interest rate corridor — as firms asked for rates within 2.5-2.95% which the central bank must pay for them to park their excess funds under the window.
The shorter term deposits saw P15.865 billion in demand, roughly half the P30-billion offering. Prior to the December increase, the auction size for the week-long tenor was just at P10 billion.
The 27- day term deposits were also undersubscribed, with bids coming in at P113.214 billion versus the P150-billion program following the sizeable hike in the auction size. Still, yields ticked higher, averaging 2.9557% as the central bank took in rates ranging from 2.75% to as high as 3.25%.
For this week, the maturity of the deposits was trimmed by a day to reflect the Nov. 30 Bonifacio Day holiday when the auction was originally scheduled.
Sought for comment, BSP Governor Amando M. Tetangco, Jr. said banks may have wanted to hold on to bigger amounts to respond to higher demand for the coming holiday season, coupled with the decision of trust firms to start trimming their placements under the TDF.
“There was under subscription at the auction today. Possible reasons include seasonality ( banks holding on to cash for the holidays) and the withdrawal of trust accounts from BSP facilities. These may have brought down the bid-to-cover ratio to 0.5288 and 0.7548 for the 6- day and 27- day tenor, respectively,” Mr. Tetangco said in a text message to reporters on Thursday.
In a Nov. 18 memorandum, the BSP formally announced that trust entities must start winding down their TDF placements ahead of the June 30, 2017 deadline, where they can no longer access any of the central bank’s standing facilities. The companies must cut their TDF holdings to half by Dec. 31, the order read.
Despite the lower turnout under the TDF, the central bank chief said there remains ample money supply in the economy, although the BSP remains vigilant for possible shocks in the financial system.
“We see the level of liquidity in the system as still healthy and non-inflationary,” Mr. Tetangco said. “We nevertheless remain watchful of external developments that may affect domestic liquidity thru shifts in capital flow direction and magnitude.”
The central bank will again auction term deposits worth P180 billion in the next two weeks, broken down into P30 billion for the week- long tenor and P150 billion for the monthlong tenor.
The TDF is currently the central bank’s main tool to capture excess funds in the local financial system, with the goal of bringing market rates closer to the BSP’s 3% benchmark rate.
Having an abundant supply of idle funds in the market drives cheaper borrowing and deposit rates, which averaged below the central bank’s policy rates prior to the shift to the interest rate corridor last June.
BSP Deputy Governor Diwa C. Guinigundo earlier said that the rising TDF yields are “preemptive” of an expected “lift-off” in interest rates in the United States, amid expectations that the Federal Reserve will proceed with a rate hike during their Dec. 13-14 meeting.