Term deposits yield mixed

MANILA, Philippines -  Term deposit rates showed mixed results during yesterday’s auction as trust entities continued to wind up their holdings in the overnight deposit and term deposit facilities.

The seven-day term deposits fetched a lower rate of 3.0978 percent during yesterday’s term deposit facility (TDF) auction from 3.1384 percent last week as accepted yield ranged between 2.9 and 3.15 percent.

On the other hand, the yield of the 28-day term deposits inched up to 3.4814 percent from last week’s 3.461 percent as accepted rates ranged from 3.375 to 3.5 percent.

The short-dated term deposits attracted P53.57 billion in bids. The auction committee made a full award of P40 billion for a bid coverage ratio of 1.3393 percent.

The 28-day term deposits remained undersubscribed as tenders for the P140 billion offering only amounted to P102.53 billion for a lower bid coverage ratio of 0.7324 percent.

The auction committee of the BSP decided to maintain the TDF volume at P180 billion on June 14 comprising of P40 billion for seven-day term deposits and P140 billion for 28-day term deposits.

Funds continue to shift to other debt instruments such as treasury bills (T-bills) and treasury bonds (T-bonds) as trust entities have until the end of the month to unwind their ODF and TDF holdings.

BSP Governor Amando Tetangco Jr. said in a text message the overall results of the TDF auction do not appear to show a significant change in the system liquidity from recent auctions.

Tetangco said yesterday's auction reflected the continued preference for the short-term tenor in anticipation of near term events like the elections in the UK and the next meeting of the US Federal Reserve.

He added the 28-day term deposits continued to be undersubscribed due to the unwinding by the trust departments of their placements in the TDF.

“The outturn in the 28-day deposits could have been influenced by the nearing end date for the winding down of trust unit placements in the TDF,” he said.

The BSP has introduced the TDF and converted the special deposit account (SDA) facility into the ODF after shifting to the interest rate corridor (IRC) system in June last year.

Both the TDF and ODF are used to mop up excess liquidity in the financial system. The shift to the IRC system is aimed at bringing market rates closer to the policy rates.

Latest data released by the BSP showed money supply or 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.