Term deposits undersubscribed amid bigger volume

YIELDS on term deposits climbed yesterday as the central bank’s bigger offering was met with tepid demand.

Banks only put forward P98.455-billion bids for Wednesday’s auction of term deposits, well below the P120-billion offer made by the Bangko Sentral ng Pilipinas (BSP) which would have been the biggest offering since November last year.

The offers plunged from the P130.526 billion tenders received a week ago, which was well above the P80 billion which the central bank wanted to sell back then.

All three tenors went undersubscribed, which drove yields higher for the week- long and month-long papers.

Bids for the seven- day term deposits totalled P42.589 billion, slipping from the P64.095 billion placements received a week ago to settle below the BSP’s P50billion offer.

The low turnout forced the central bank to pay bigger returns, with the average yield climbing by 7.4 basis points ( bp) to 3.5866%. Bank bids ranged from 3.4-3.75%, hitting the ceiling of the interest rate corridor.

Demand for the 14-day tenor also slipped to P32.155 billion from P44.696 billion a week ago, versus the P40 billion placed on the auction block. However, margins sought by players went a tad lower to average 3.5783%, little changed from 3.5855% fetched the previous Wednesday.

In contrast, appetite improved for the 28- day deposits as bids reached P23.711 billion compared

to P21.735 billion a week ago. Still, bets were lower than the P30 billion the BSP wanted to auction off.

The average yield then climbed to 3.5716%, up 7.4bp from 3.4979% last week.

The term deposit facility (TDF) is the central bank’s primary tool in capturing excess money supply in the local financial system. The BSP actively tweaks auction amounts each week in order to bring market and interbank rates within its desired spread, which currently ranges from 2.75-3.75% following a rate hike announced on May 10.

BSP Deputy Governor Diwa C. Guinigundo previously said that banks have been recalibrating their TDF placements as they digest higher benchmark rates following the central bank’s policy decision.

Liquidity has also been normalizing after two holidays in early May, coupled with bigger portfolio investment flows which inject additional liquidity.

The central bank has trimmed the auction volume for May 30 following the pale demand seen this week. The BSP will float P110 billion worth of term deposits, split into P50 billion under a seven-day term, P40 billion with a 14-day maturity, and P20 billion for the 28-day tenor.