Auction of term deposits oversubscribed

BANKS and trust entities swarmed the central bank’s auction of term deposits yesterday, with the offer fetching the same rate as previous issues of the week-long and month-long tenors as the market remains liquid.

The Bangko Sentral ng Pilipinas (BSP) also announced volumes to be offered for its second auction in July, which were similar to the slightly higher quantity up for grabs in its initial offering next week.

Central bank data showed that the offering of both the sevenday and 28- day deposits under the term deposit facility ( TDF) were oversubscribed, fetching a weighted average yield of 2.5%, unchanged from the past three auctions and matching the floor rate provided by the overnight deposit facility under the interest rate corridor system.

The TDF is now the central bank’s main tool to mop up excess liquidity in the financial system, whereby banks and trust entities bid for the interest rate which the BSP will pay for them to place their excess funds in that facility.

The BSP’s offer under the seven- day tenor was met with P61.383 billion in total bids, or over six times bigger than the P10- billion auction volume. Meanwhile, the P20-billion offer for a 28-day term was met with a P91.955-billion demand, or over four times the full allocation.

Banks and trust companies can bid a minimum of P10 million and a maximum of 20% of the total auction size being offered per tenor each week.

A bank trader interviewed by phone yesterday said the oversubscription of both TDF tenors shows “there is still ample liquidity” in the [financial] system.

“Many counterparties were interested. The auction size was also small so it was oversubscribed and we have a very liquid financial market,” the trader added.

Also yesterday, the BSP announced a P50- billion offering of term deposits for its July 13 auction, the same volume up for grabs at its July 6 auction.

The volumes were higher than the P30 billion offered for each of the four weeks of June. The award of deposits under the 28- day tenor will go up to P40 billion, double the original P 20billion offer, while offers under the week-long tenor will remain at P10 billion.

Monetary officials said last month they can consider offering higher volumes and conducting more auctions should conditions warrant. But so far, auctions will be held only once a week until endseptember, based on the quarterly schedule released yesterday.

The auctions are designed to promote greater interbank lending given a more market-oriented system of setting key rates while also mopping up excess liquidity in the system.

The BSP aims to migrate funds parked under the former special deposit account window — amounting to at least P1 trillion — to the TDF.