TDF bids down as market shifts to RTBs
DEMAND for the month-long term deposits offered by the Bangko Sentral ng Pilipinas (BSP) dropped further yesterday, as banks chose to invest their idle funds in retail Treasury bonds (RTBs) issued this week in search for better yields.
Total bids for the term deposit facility ( TDF) slipped further to P156.914 billion on Wednesday, dropping from last week’s P179.947 billion and falling short of the P180 billion offered by the central bank.
This came as tenders for the 28- day tenor came in at just P120.754 billion, barely filling the P150 billion put up for auction. The BSP even rejected some bids, taking only P120.504 billion as some market players asked for rates beyond what the central bank is willing to pay.
As the bids dropped, the average yield climbed to 3.3746%, as banks and trust firms sought for rates ranging from 3.25% to 3.5%, matching the ceiling of the BSP’s interest rate corridor.
On the other hand, the P30billion offer for seven-day term deposits remained oversubscribed with offers reaching P36.16 billion, but logged lower than the previous week’s P39.186billion demand. The average yield also ticked higher to 2.997% from 2.9896% a week ago.
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 funds under the new window in exchange for a small margin. Through this, the BSP expects to bring market rates closer to its 3% benchmark rate and prod the firms to pursue interbank lending.
Central bank officials said the weaker demand for the monthlong term deposits likely reflected the decision of market players to place their funds under the retail bonds offered by the Bureau of the Treasury.
“The auction results of lower subscriptions and slightly higher rates are as expected given the availability of fresh supply from the national government in terms of the RTBs. Banks are still looking towards shorter-dated instruments, and as expected, will try to squeeze as much yield from alternative investment outlets,” BSP Governor Amando M. Tetangco, Jr. said in a text message to reporters.
The government raised P70 billion from its auction of threeyear RTBs in its initial offer on Tuesday, which fetched a coupon rate of 4.25%. The public offering of the debt papers will end on April 6.
BSP Deputy Governor Diwa C. Guinigundo added that investors still preferred the week-long tenor as it gives more “flexibility” in terms of managing liquidity positions ahead of key developments in the global financial markets.
“The market is anticipating further adjustments in the US Fed interest rate so longer-dated instruments are less preferred over the shorter- dated TDFs,” Mr. Guinigundo said separately, referring to future moves from the Federal Reserve.
This also comes as trust firms scale down their placements under the TDF and the overnight deposit facility to 30% of their original volume by Friday, in line of a full phase-out of their access to the central bank’s facilities by June 30.
Despite this, the BSP has decided to keep the weekly auction volume at P180 billion for the first two weeks of April, as officials see ample liquidity in the financial system.
“These are all part of market dynamics which do not yet require any changes in the volumes of the BSP auction facilities. We’ll be monitoring liquidity levels against our forecast liquidity path,” Mr. Tetangco said, noting the need to provide “stability” in the conduct of the auctions while spurring bank lending activities.
“The ultimate game plan is for banks to lend to the market for long-term projects that will generate employment and increase wealth. The TDF is here to help steer interest rates and not to be an investment outlet.”
As of March 22, Mr. Guinigundo said only less than P800 billion out of P990 billion funds under the BSP’s old special deposit account have migrated to the TDF, leaving some P200 billion available in the banking system.