TDF yields climb as BSP cuts offer volume

YIELDS FOR term deposits climbed across all tenors amid smaller volumes offered this week, with banks eyeing bigger margins as they expect market rates to keep rising.

Banks wanted to place P96.262 billion under the term deposit facility (TDF) yesterday, slightly higher than the P90 billion which the Bangko Sentral ng Pilipinas ( BSP) wanted to sell. Total tenders dropped compared to the P112.07 billion bids received last week, against a P110-billion offering.

In return, these players asked for rates which were around five basis points higher from the previous week’s average.

Demand for seven- day term deposits remained strong despite the reduced auction size, with bids reaching P47.031 billion to surpass the P40 billion which the central bank floated on Wednesday. This, however, slipped from the P50.446 billion tenders received a week ago versus a P50-billion offer.

The week- long instruments fetched a 3.4397% average yield, rising from the 3.3967% seen the previous week as banks wanted returns ranging from 3.3-3.5%.

The 14-day tenor also saw tempered demand as bids amounted to P31.297 billion, higher than the P30 billion dangled by the BSP. This follows P38.15 billion in awarded bids the previous week against a P40-billion offering.

The average yield picked up to 3.4648% from 3.437% from the April 18 auction.

On the other hand, demand for the 28-day instruments slipped to P17.934 billion compared to P23.474 billion received a week prior, settling below the BSP’s P20-billion offer.

Market players also sought for bigger returns to hit a 3.4574% average, which inched up from 3.4097%.

The TDF is currently the central bank’s main tool in capturing excess funds in the local financial system. The BSP expects to keep market rates closer to the 3% benchmark rate by paying margins to banks who decide to park unused cash under the window.

The central bank trimmed the auction volume to P90 billion this week in anticipation of tepid demand ahead of the May 1 holiday, when banks will likely opt to hold more cash to service withdrawals and client demands.

Sought for comment, BSP Deputy Governor Diwa C. Guinigundo said lenders are demanding wider margins for placing their excess funds under the TDF as they take advantage of movements in the financial market.

“Banks are leveraging on what they think are tightening market conditions that would include prospects for higher inflation in the country and several rate hikes expected in the US Fed,” Mr. Guinigundo said in a text message.

“They also cite higher funding requirements for the infrastructure program of the national government and their consequence on domestic interest rates.”

During their March meeting, members of the US Federal Reserve saw the economy gaining strength and inflation rising “in the coming months,” fuelling investors’ belief that the central bank will continue to hike its interest rates this year. Back home, several analysts are calling for a rate hike from the BSP as early as May 10, although policy makers have said that inflation remains “manageable” despite trending above four percent.

The government intends to spend P1.068 trillion on public infrastructure this year, in line with the “Build, Build, Build” agenda of the Duterte administration.

Market rates have been on the rise to mirror the trend in global yields, particularly as rates of US Treasuries are hitting four-year highs.

Next week, the central bank will put up the P90 billion in term deposits for offer again — P40 billion in the seven-day tenor, P30 billion for 14-day, and P20 billion in the 28-day deposits.