Two-week term deposit a viable third TDF tenor
A TWO-WEEK TENOR could be a viable offering for the central bank’s weekly term deposit auctions, an analyst said, as this could satisfy the market’s bias towards short-termed instruments.
The Bangko Sentral ng Pilipinas ( BSP) would likely set a 14-day term as a third tenor for the term deposit facility (TDF), said Christopher Ma. Carmelo Y. Salazar, senior vice-president and group head of financial markets at the First Metro Investment Corp. (FMIC).
“Another tenor will probably be two weeks. It could be more viable than the 28 days because market is looking for short term. These are, after all just excess funds at the moment,” Mr. Salazar said in a recent interview.
“You just want to park it somewhere to earn, but you don’t want to really tie it up for a long time because if there’s an opportunity, you want to use it.”
BSP Deputy Governor Diwa C. Guinigundo said the central bank is currently in talks with industry players as they consider a new maturity for term deposits, which would likely be longer than a week but shorter than a month.
This follows the decision of the monetary authority to stop offering the 28- day tenor since mid-December as they saw some tightening in liquidity conditions and pale demand from banks.
The TDF is currently the central bank’s main tool to capture excess money supply in the financial system.
The window allows banks to park the idle cash they hold under the BSP in exchange for a small margin, which in turn will prod market rates to move closer to the three percent benchmark set by the central bank.
The BSP has been offering only P40 billion — in the form of seven-day term deposits — since Dec. 20, as players shied away from month-long placements.
Mr. Guinigundo said players preferred the shorter tenor as it lends more “flexibility” for banks to manage their funds and service client demands over the Christmas season, as they also deploy cash for lending, foreign exchange, offshore investments and debt payments.
Last week’s auction received overwhelming bids worth P119.582 billion, which is nearly three times the amount dangled by the central bank. The weeklong deposits fetched a 2.9256% average yield, declining for the sixth straight week.
The auction volume will remain at P40 billion for Wednesday’s auction.
“The short tenor facilities should continue to do well... The market wants the liquidity to come back faster,” FMIC’s Mr. Salazar said.
This is in line with the general preference for short- term placements, as seen in the bonds market.
“I think for this year, market will still prefer the short term. Five years and below will probably be something that market and investors will go after, especially that everyone views rates to go higher — to protect yourself against higher rates, you stay on the short end of the curve,” Mr. Salazar added.
This comes ahead of expectations of three more rate hikes in the United States this year, which would lift global yields further. However, uncertainties remain as to the timing and pace of these rate adjustments.