November 25, 2017 | MANILA, PHILIPPINES

Seven-day term deposits attract demand

MARKET PLAYERS continued to crowd the week-long term deposits during yesterday’s auction, driving yields lower as more banks and trust firms largely preferred the shorter tenor.

Term deposits offered by the Bangko Sentral ng Pilipinas (BSP) on Wednesday received P182.334 billion in total demand, although some bids had to be rejected under the seven-day tenor as these went beyond the amount being auctioned.

The week-long instruments saw total tenders hit P55.302 billion, lower than the P70.809-billion demand seen the previous week but still well above the central bank’s P40-billion offer.

Banks and trust firms also asked for lower rates ranging from 2.6-3.275%, which resulted in a lower average yield at 3.2468%, below the 3.2756% rate fetched during the May 10 auction.

On the other hand, demand for the 28-day term deposits remained low, with P127.032 billion worth of bids barely filling the P140-billion auction size, although still a recovery from the past week’s P74.409 billion. As a result, the average yield inched up to 3.4764% from 3.461%.

The term deposit facility (TDF) is currently the central bank’s main tool to capture excess money supply in the financial system by allowing financial firms to place their idle funds with the BSP -- or those which are not handed out as loans or classified as reserves -- in exchange for a small margin.

Central bank officials have repeatedly said that market players are largely biased towards the shorter tenor at a time of heightened uncertainty across financial markets.

BSP Deputy Governor Diwa C. Guinigundo earlier pointed out that the markets wanted to have more “flexibility” in handling their excess funds, thus the stronger preference for a shorter lock-in period under the seven-day term.

“There’s still a lot of uncertainty in the market -- uncertainty in the sense that anytime, the US Fed can choose to do a third or even a fourth adjustment in the policy rate. If you are holding a longer term instrument, you’ll be locked in to that instrument,” Mr. Guinigundo has said.

For next week, the central bank decided to keep the TDF auction volumes steady at P40 billion for the seven-day tenor and P140 billion for the month-long tenor, as the monetary authority continues to see stronger demand for the week-long term deposits. This marks the sixth straight month when the total auction amount was raised to P180 billion.