Yields on term deposits mixed as offers pick up

DEMAND for term deposits picked up this week but still logged below offer, driving mixed movements for yields amid a shrinking surplus in money supply.

Banks only wanted to place P124.081 billion under the term deposit facility (TDF) of the central bank yesterday, lower than the P130 billion on the auction block although improving from the P121.147 billion received a week ago.

Bids for the seven-day tenor remained below the P40 billion the Bangko Sentral ng Pilipinas ( BSP) placed on the auction block, scraping only P37.57 billion although rising from the P30.528 billion received during the Nov. 2 auction.

This drove yields slightly higher to 3.3849% from the 3.3548% average fetched the previous week.

On the other hand, tenders for the 28- day term deposits went down to P86.511 billion from last week’s P90.619 billion, failing to fill the P90 billion which the central bank dangled. Amid softer demand, returns trended lower to average 3.4908% from 3.494%.

The TDF is the central bank’s main tool to capture excess money supply in the financial system by allowing banks to park funds which they cannot deploy for loans in exchange for a small return.

BSP Deputy Governor Diwa C. Guinigundo said the auction results reflected thinner liquidity surpluses held by banks, as they found alternative instruments to deploy their excess funds.

“[ W]hat is happening is that we see the surplus funds in the system declining in volume that BSP normally mops up. Since these have decreased, the BSP would be simply siphoning less from the market,” Mr. Guinigundo said in a text message to reporters.

The central bank official said banks likely poured more funds into lending and to long- term notes dangled by market players which have “absorbed some liquidity from the market.”

Bank lending surged by a fifth in September, according to latest central bank data.

For next week, the BSP will again offer P130 billion worth of term deposits, split into P40 billion under the week-long maturity and P90 billion for a monthlong term.

Trading and TDF operations of the central bank will remain open next week despite the work suspension announced by Malacañang for the country’s hosting of the Association of Southeast Asian Nations Summit.