Term deposit offering undersubscribed
TENDERS for the month-long term deposits dropped below offer this week as market players continued to prefer the shortertermed instrument, although the central bank chose to keep auction volumes steady for the fifth straight month as markets still remain awash with liquidity.
Demand for the term deposits offered by the Bangko Sentral ng Pilipinas (BSP) dipped to just P179.947 billion, falling short of the P180-billion auction size and slipping from P218.016 billion in total tenders received the previous week, the central bank reported yesterday.
The 28-day term deposits attracted just P140.761 billion in total demand, lower than the P150 billion put up for auction by the BSP and slipping from the P176.891 billion in bids received a week ago.
The lower tenders came alongside a lower average yield sought by banks and trust firms, which averaged at 3.3028% from 3.3249% the previous week.
The seven-day tenor also saw lower demand at P39.186 billion, declining from the P41.125 billion in total offers seen during the March 15 auction. This covers 1.3 times the BSP’s P30-billion offering, sustaining a trend oversubscription seen over the past weeks.
Yields sought by market players inched slightly higher to average at 2.9896% from 2.9823% previously. This came from a narrow range of 2.9- 3.007% which the firms wanted the BSP to pay in exchange for parking their excess funds under the term deposit facility (TDF).
The TDF is the central bank’s main tool to capture excess liquidity in the financial system by allowing banks and trust firms to place their idle funds under the new window in exchange for a small margin. Through this, the BSP expects to bring market rates closer to its 3% benchmark rate and prod the firms to pursue interbank lending.
“There is more preference for the seven- day instrument because the market is positioning for any opportunistic short-term propositions,” BSP Deputy Governor Diwa C. Guinigundo said in a text message to reporters.
Central bank officials have observed a continued preference for short-dated instruments over the past few weeks leading up to the United States Federal Reserve’s rate-setting meeting last week.
Since last month, amount tenders have been rising in favor of the week-long tenor, which was seen by monetary officials as a reflection of market caution ahead of the Fed’s decision. The Fed eventually announced a 25-basis-point rate hike during their March 14-15 meeting, while hinting that two more increases could be on the table within the year.
However, the BSP said they still see no need to raise the weekly auction volume for the coming weeks, noting that there remains more than enough liquidity in the markets despite the lower turnout for the 28-day tenor.
“It’s true the bid to cover ratio for the 28-day TDF has dropped to less than one, but that does not necessarily imply that market liquidity is tightening,” Mr. Guinigundo added, pointing out that only less than P800 billion of P990 billion funds under the old special deposit account have migrated to the TDF since the window was launched in June last year.
“This means more than P200 billion is out there in the market funding loans, investments, FX ( foreign exchange) purchases, and government spending,” the BSP official added.
The central bank will auction off P180 billion in term deposits next week and on April 5, keeping the level steady since December.
This also comes ahead of the BSP’s directive for trust firms to trim their placements under the TDF and the overnight deposit facility to 30% of their original volume by March 31, in line of a full phase- out of their access to the central bank’s facilities by June 30.