Yields on term deposits mixed as banks swamp shorter tenors

YIELDS FETCHED for term deposits saw mixed movements this week amid cooling demand, with banks still choosing shorter lockin periods for their excess funds under the central bank.

Bids for the term deposit facility (TDF) amounted to P100.813 billion on Wednesday, down from the P119.08 billion in tenders received last week but still more than the P90 billion which the Bangko Sentral ng Pilipinas (BSP) placed on the auction block.

Both the one-week and twoweek tenors stood oversubscribed for the fourth straight week, although the month-long papers settled below offer just as the central bank raised the auction amount. This resulted in lower average rates for the shorter maturities and a peak for the one-month notes.

Demand for the seven-day instruments slipped to P53.642 billion from the P66.002 billion received a week ago. Still, it settled above the BSP’s P50-billion offering.

Banks grew a little sober with the returns they wanted for the TDF placements, with the average sliding to 4.7196% from 4.7207% last week.

The same trend was observed under the 14-day deposits, with bids easing to P28.506 billion from P31.273 billion last week, although still well above the P20 billion which the central bank wanted to sell.

The overwhelming demand pulled the average yield down to 4.7553%, coming from 4.765% seen during the Oct. 17 exercise.

In contrast, the 28-day tenor was met by even weaker appetite as it shored up only P18.665 billion tenders, lower than the upward-revised P20-billion offer. Bids eased from the P21.805 billion in tenders received a week ago.

In turn, rates fetched for these longer placements inched up to 4.8493%, higher than the previous week’s 4.8362% average.

Since June 2016, the TDF has been the central bank’s main tool to capture excess money supply and influence short-term rates in the financial system.

The weekly auctions are meant to bring 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 placements. Higher TDF placements prod banks to also raise interest rate margins for their products.

Benchmark rates currently range from 4-5% following another rate hike worth 50 basis points (bp) announced by the BSP last month.

Policy rates have gone up by 150 bps since May as the central bank sought to rein in inflation expectations and also boost the peso, which has been depreciating versus the dollar in recent months.