December 12, 2017 | MANILA, PHILIPPINES

Yields on term deposits climb

YIELDS under the central bank’s term deposit facility (TDF) continued to trend higher yesterday despite a slump in demand for the month-long tenor as banks continued to prefer shorter-termed instruments.

Tenders during Wednesday’s auction dropped to P127.508 billion, slightly lower than the P129.907 billion in bids received a week ago and missing the P180-billion offered by the Bangko Sentral ng Pilipinas (BSP) for the fifth straight week.

Bids for the seven-day term deposits recovered during yesterday’s exercise to hit P41.342 billion, going above the P30-billion auction volume after remaining below offer for two weeks. With the recovery in demand, the average rate also went up to 3.3615%, as banks and trust firms asked for returns ranging from 2.9% to 3.5%.

On the other hand, demand for the 28-day tenor slipped to just P86.166 billion, just over half the P150 billion the BSP placed on the auction block. This was even lower than the P100.183 billion in bids received during the April 12 auction.

With this, firms also asked for higher rates for parking their surplus funds under the BSP facility, with the average yield climbing to 3.4565% from last week’s 3.4499%.

The TDF is the central bank’s main tool to capture excess liquidity in the financial system by allowing financial firms to place their idle money under the facility for a small margin. Through this, the BSP eyes to bring market rates closer to its 3% benchmark rate and prod increased interbank lending.

Central bank officials have earlier attributed the weaker demand for the term deposits to the government’s public offer of three-year retail Treasury bonds between March 28 and April 6, which came with a higher 4.25% yield.

BSP Governor Amando M. Tetangco, Jr. also said last week that they saw a seasonal tightening in market liquidity as the banks serviced client withdrawals ahead of the Holy Week break, and also to meet the reserve requirement set by the central bank.

Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, said: “[l]iquidity is likely to normalize in the next few weeks as funds that have funded not only the P180-billion RTB (retail Treasury bond) issuance and seasonal tax payments are brought partially back to the banking system...”

“Short-term interest rates have started to gradually moderate, indicating that our expectation of normalization could happen sooner rather than later,” Mr. Cuyegkeng added.

Meanwhile, the central bank announced that they will only release auction volumes a week ahead of the offer period effective May 3, against the previous two-week advisory. The BSP said this was their response to industry feedback.

For now, the BSP will be keeping the term deposit offering at P180 billion for the April 26 auction, broken down to P30 billion under the week-long tenor and P150 billion for the month-long instrument.