TDF yields pick up as offer still undersubscribed

YIELDS under the term deposit facility (TDF) picked up yesterday as the trimmed auction volumes went undersubscribed, even as banks wanted to park more funds under the monthlong instruments offered by the central bank.

Total bids received for Wednesday’s auction stood at P139.271 billion, picking up from the P127.333 billion tenders the previous week, as market players crowded the 28day term deposits.

Offers for the seven-day tenor dipped to P37.829 billion from the P42.918 billion tallied last Sept. 6 and lower than the P40 billion which the central bank placed on the auction block. As a result, the average yield climbed to 3.3484% from 3.3334%.

On the other hand, demand for the 28-day term deposits jumped to P101.442 billion yesterday from just P84.415 billion which banks wanted to leave with the Bangko Sentral ng Pilipinas (BSP) last week, but still short of the P110-billion offering.

Still, average rates sought by the lenders inched higher to 3.495% against last week’s 3.491% average, as the bids ranged within 3.45% to 3.5% which hovered close to the central bank’s ceiling rate.

The TDF is currently the central bank’s main tool to arrest excess money supply in the financial system, where banks can park idle funds • or those which are not deployed for loans or reserves • for a small return.

This week also marks the second time that the BSP auctioned off P150 billion in term deposits, lower than the P180 billion they offered over the last nine months.

Sought for comment, BSP Deputy Governor Diwa C. Guinigundo said market liquidity remains ample despite yesterday’s auction results, pointing out that rates moved generally sideways.

He added that while the market still prefers short- termed papers, some investors are now taking chances with longer tenors amid rising expectations that interest rates in the United States as well as global yields will remain steady for the rest of 2017.

“The situation continues to be very fluid. I believe the market still prefers short tenors although with the probability of a US Fed[eral Reserve] funds rate increase diminishing this year, some segments may test longer than 7 days,” Mr. Guinigundo said in a text message to reporters, noting that market appetite is also “bound to change” once the government issues more bonds to support its P8.44-trillion infrastructure spending plan.

“What is important at this point is that the interest rate dynamics is broadly steady, interest rate volatility remains manageable,” the central bank official added.

The US Federal Reserve is getting more dovish in the face of weak inflation data, reducing the likelihood of a third rate hike this year, which traders already see as very unlikely.

Three Fed policy makers earlier this month expressed doubts about further rate hikes, with one influential policy maker calling for a delay in raising US interest rates until the Fed is confident inflation will rebound.

Mr. Guinigundo said last week that the monetary authority is considering to introduce new tenors for the TDF which may be announced later this year, with their decision to depend on the feedback from banks that vie for the weekly auctions.

Next week, the BSP will again try to sell P150 billion in term deposits, split between the sevenday tenor worth P40 billion and the 28-day papers worth P110 billion. •