Yields on term deposits decline

THE CENTRAL BANK’S auction of term deposits saw average yields trend lower yesterday, which comes at a time of heightened uncertainty in the financial markets.

Both the week- long and month- long tenors saw total tenders drop from a week ago, but remained slightly higher than the P180 billion auctioned off by the Bangko Sentral ng Pilipinas (BSP).

The seven-day term deposits saw total bids reach P37.876 billion during Wednesday’s auction, only slightly above the P30 billion offered by the central bank. The average yield also sank to 3.0021%, as banks and trust entities asked for returns from a narrow range of 2.9-3.02%.

This marks a steady decline in average rates since the year opened.

Demand for the 28-day tenor also tapered off to P171.301 billion, against the P150 billion up for auction. In turn, the average rate also dropped to 3.3929% from the previous week’s 3.4007%.

The term deposit facility ( TDF) is currently the central bank’s main tool to capture excess liquidity in the financial system, with the goal of bringing market rates closer to the BSP’s 3% benchmark rate while also spurring greater interbank lending.

BSP Governor Amando M. Tetangco, Jr. said the auction results reflected sustained preference for shorter-termed instruments like the TDF, at a time of abundant money supply in the financial system.

“The auction results show there is still good demand for short dated TDF placements (seven days and 28 days) even as the bid-to-cover ratios are lower than last week’s. There continues to be oversubscription and the rates were still on a downtrend,” Mr. Tetangco said in a text message to reporters.

“The liquidity in the system remains healthy. Investors remain on the lookout for short dated papers with good yields.”

The Bureau of the Treasury raised P15 billion during its Tuesday offer of reissued five-year bonds which fetched an average rate of 4.03%, higher than the

3.876% rate during the Jan. 24 auction.

The central bank also decided to keep the TDF auction volume at P180 billion for the first two weeks of March, which marks the fourth straight month since the amount was hiked in December. Central bank officials have said that keeping the TDF volume steady is appropriate as the markets remain awash with liquidity.

Plans to trim the 20% reserve requirement ratio imposed on big banks have also been held off, with the BSP waiting for tighter liquidity conditions before introducing such changes.