BSP’s weekly TDF auction remains undersubscribed

central bank’s term deposit facility (TDF) auction had higher bids this week of R139.271 billion but still below the recently reduced offer size of R150 billion.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo yesterday said the market is liquid and demand continues to stay with the shorter-dated TDF.

In Wednesday’s auction, the 7-days had tenders of R37.829 billion versus offer of R40 billion, lower than last week’s R42.918 billion.

The 28 days, in the meantime, was still undersubscribed with R101.442 billion against offer of R110 billion.

“The situation continues to be very fluid,” said Guinigundo. “I believe the market still prefers short tenors although with the probability of a US Fed funds rate increase diminishing this year, some segments may test longer than 7 days.”

“What is important at this point is that the interest rate dynamics is broadly steady, interest rate volatility remains manageable,” he added, and that it “takes longer time series to really establish firmer trend.”

Guinigundo said market sentiment however may experience a shift when the government sells securities to finance infrastructure projects.

“Once the NG (National Government) issues bonds in a bigger way to support higher public spending on infrastructure, market appetite is bound to change.”

The weighted average rate for 28 days stood at 3.4950 percent from the previous 3.4910 percent. The bid coverage ratio improved to 0.9222.

The 7 day tenor’s average accepted yield increased to 3.3484 percent from last week’s 3.334 percent. Demand moderated as its bid coverage ratio dipped to 0.9457 from 1.0730 last Wednesday.

The BSP said it will continue to offer R150 billion – R110 billion for 28 days and R40 billion for 7-days – on the next auction, September 20. It recently cut the offer size from R180 billion to R150 billion, mainly on the 28 days because of the market's preference for the shorter-dated TDF.

The TDF is one of the BSP’s primary liquidity absorption facilities and part of the interest rate corridor system the BSP adopted June of last year. (LCC)