TDF auction gets tepid buying after RTB sale

The central bank’s 28day term deposit facility (TDF) yesterday awarded only R40.361 billion out of its R90 billion offer as some of market funds were diverted by government bonds.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the Bureau of the Treasury’s (BTr) sale of R130 billion worth of fixedrate, five-year retail treasury bonds (RTB) last week is one of the main reason for the huge under-subscription. The other is investors’ anticipation of US interest rates movement which would impact fund flows.

“The large under-subscription is due largely to the recent issue of R130 billion in retail treasury bonds by BTr,” commented Guinigundo. “The expected US Fed tightening in December also underlies this under-subscription. But recall that the BSP only mops up excess liquidity from the system.”

“Thus what we are seeing is the lower excess liquidity on account of available options including loans, government securities investments, foreign exchange purchases, etc.,” he added.

The 28-day TDF had a weighted average yield of 3.4926 percent which was lower compared to the previous week’s 3.4933 percent. Amount tendered of R40.361 billion was lower compared to last Wednesday’s R69.186 billion.

The 7 days TDF, in the meantime, is still getting more than offer at R52.415 billion versus auction size of R40 billion. This was higher than last week’s R45.160 billion.

The shorter-dated tenor fetched a higher average rate of 3.4057 percent this week.

Guinigundo always emphasized that what is important is that banks are using funds to increase lending activities.

Since banks are busy growing loans and credit, the volume of excess liquidity the BSP needs to mop was lesser than before, hence, the TDF’s 28 days are persistently undersubscribed.

Guinigundo said it is a positive development when banks are lending out excess funds rather than placing these funds with the BSP.

The BSP announced yesterday that they will keep the R130-billion auction volume for November 29, or R90 billion for 28 days and R40 billion for the 7 days.