TDF yields hit fresh high
YIELDS fetched for term deposits surged to a fresh high yesterday even as demand cooled from a week ago, with players again crowding the seven-day papers at a time of market uncertainty.
Bids for the term deposit facility (TDF) reached P124.259 billion on Wednesday, well above the P80 billion the Bangko Sentral ng Pilipinas (BSP) offered but lower than the P131.03 billion put forward by banks a week ago.
All tenors stood oversubscribed for the second straight week since the central bank tightened interest rates by another 50 basis points (bp) during their Sept. 27 policy meeting, which brought the interest rate corridor to 4-5%.
Demand for the seven-day term deposits reached P73.282 billion, settling higher than the P50 billion which the BSP placed on the auction block but down from P77.305 billion received last week.
Banks also sought for bigger returns for their placements within the 4.645-4.75% range, which pulled the average yield to 4.7274% which inched up from the 4.7127% fetched the previous week.
On the other hand, players wanted to place more funds under a 14-day arrangement as they put forward P33.216 billion in total tenders, improving from P27.22 billion a week ago and surpassing the P20 billion which the central bank is offering.
This pushed the average yield higher to 4.7729% as lenders wanted returns between 4.7-4.8%, climbing from the 4.7353% rate posted during the Oct. 3 exercise.
Appetite for the 28-day instruments tapered off to P17.761 billion, slipping from last week’s P26.505 billion but still above the P10-billion auction amount. Despite this, the month-long tenor saw the biggest rise in yields, with the average rate climbing to 4.8549%, up 6.7 bps from last week’s 4.7884%.
The TDF is currently the central bank’s main tool to capture excess money supply in the financial system. The weekly auctions of short-term papers are meant to usher market and interbank rates to within the BSP’s desired range by setting the standard for short-term instruments using the margins that they pay to banks for these TDF placements.
BSP Deputy Governor Diwa C. Guinigundo said last week that he expects “relative stability” in the foreign exchange market as well as sustained state spending to boost domestic liquidity, which could leave banks with more cash to deploy for lending and investments.
Market economists mostly expect another rate hike from the BSP as inflation maintains its ascent within the remaining months of 2018 in order to temper inflation expectations. If realized, this would also push market yields higher.