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TDF yields mostly steady as demand recovers

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Guinigundo-BW
Central Bank Deputy Governor Diwa C. Guinigundo -- BW FILE PHOTO

By Melissa Luz T. Lopez, Senior Reporter

DEMAND for term deposits recovered yesterday even as bids for the one-month tenor failed to fill the amount offered by the central bank despite the reduced auction volume, with yields mostly steady from a week ago.

Banks wanted to place as much as P148.378 billion under the term deposit facility (TDF), slightly higher than the P107.375 billion in tenders received the past week and the P140 billion which the Bangko Sentral ng Pilipinas (BSP) wanted to sell.

However, some bids for the week-long tenor had to be rejected as these went beyond the P40 billion which the central bank placed on the auction block.

Offers for the seven-day term deposits doubled to P53.545 billion from P27.785 billion received a week ago. The oversubscription pulled rates down to a 3.3664% average from 3.3678% the previous week.

Demand for the 28-day instruments also recovered to reach P94.833 billion coming from the P79.59 billion tenders posted by banks a week ago. However, the bids did not fill the downsized P100-billion offering set for this month.

With the higher offers, yields moved slightly upward to average 3.4939% coming from the 3.4907% fetched during the Sept. 27 auction.

The TDF is currently the central bank’s primary tool to capture excess money supply in the financial system, where banks can park idle funds for a minimal return.

Sought for comment, BSP Deputy Governor Diwa C. Guinigundo said banks likely chose to “diversify” asset deployment over the past week amid abundant liquidity that remains in the financial system.

“Since loans continue to grow and investments could have been maxed and FX (foreign exchange) requirements could have also been sustainably met, there seems to be renewed interest in TDF. But banks continue to go short for any promising opportunity and hence the preference for 7-day TDF and consequently, lower yields compared to 28-day TDF,” Mr. Guinigundo said in a text message to reporters.

Last week saw thin bids for the term deposits just as the third quarter came to a close.

Mr. Guinigundo said the market remains awash with cash despite the bids trending below offer, as the banks are deploying their excess funds to other uses.

“[W]e continue to see lower volume of banks’ placements with the BSP as they sustain their lending operations, investments, FX purchases for their clients’ imports and outward investment needs. This is what everyone wants to see: that banks continue to fund economic activity,” the senior central bank official said.

Bank lending grew by 20.4% in August from a year ago, alongside a 15.4% increase in domestic money supply, according to latest BSP data.

For next week, the central bank is looking to offer another P140 billion in term deposits under the facility, divided into P100 billion under the month-long tenor and P40 billion for the week-long instruments.