Term deposit rates ease further

MANILA, Philippines - Term deposit rates continued to decline as investors ignore the political risk brought about by the decision of President Duterte to declare martial law in Mindanao.

The yield of the seven-day term deposits declined to 3.1384 percent during yesterday’s term deposit facility (TDF) auction from 3.1918 percent last week as accepted yield ranged between three and 3.19 percent.

On the other hand, the 28-day term deposits fetched a lower rate of 3.461 percent from last week’s 3.476 percent as accepted rates ranged from 3.2 to 3.5 percent.

The short-dated seven-day term deposits attracted P65.46 billion worth of bids and the auction committee made a full award of P40 billion for a bid coverage ratio of 1.6367 percent.

The 28-day term deposits remained undersubscribed as tenders for the P140 billion offering only amounted to P105.34 billion for a lower bid coverage ratio of 0.7524 percent.

The BSP is set to auction P40 billion worth of seven-day term deposits and P140 billion worth of 28-day term deposits on June 7.

ING Bank Manila senior economist Joey Cuyegkeng said undersubscriptions in the weekly TDF auctions indicate relative tightness that had also affected short-term interest rates.

He pointed out the phase out of the access of trust entities to the TDF as well as the overnight deposit facility (ODF) has led to the undersubscription particularly for the longer-dated term deposits.

The Bangko Sentral ng Pilipinas (BSP) has given trust entities until July this year to unwind their exposures in the TDF and overnight deposit facility (ODF).

He also cited the retail treasury bond (RTB) offering of the national government that raised over P181 billion.

“System liquidity should have been enhanced in March with the second phase of the three-phase removal of trust funds from the TDF. Successful RTB issuance together with income tax season moderated liquidity growth and kept markets relatively tight,” Cuyegkeng said.

The BSP yesterday reported the liquidity in the financial system expanded by 11.2 percent to P9.52 trillion in end-April from P8.56 trillion in end-April last year.

The central bank said demand for credit remains the principal driver of money supply growth.

“Return to normalcy has been longer than expected but recent mildly softer TDF interest rates last week may indicate that normalcy is returning albeit gradually,” Cuyegkeng said.

Aside from the phase out of the access of trust entities in the TDF and ODF, BSP Governor Amando Tetangco Jr. earlier said banks continued to lend more to corporate clients while some shifted their funds to private issuances.

“With the increased lending by the banks to their corporate clients and there were private issues prior to this auction. So some of the funds went to those issues as well,” he said.

Last week, President Duterte issued Proclamation No. 216 “Declaring a State of Martial law and Suspending the Privilege of Writ of Habeas Corpus in the Whole of Mindanao.”