Banks swarm 7-day term deposits

MANILA, Philippines — Term deposits yesterday continued to fetch mixed results as investors picked up shorter-dated debt instruments while waiting for the results of the rate-setting meeting of the Bangko Sentral ng Pilipinas (BSP).

The seven-day term deposits fetched a lower yield of 3.6927 percent from last week’s 3.6979 percent as banks opted to go short term.

On the other hand, the yield of the 14-day term deposits hit a record high of 3.7342 percent from 3.7222 percent last week, while the yield of the 28-day tenor also rose to a record high of 3.7326 percent from 3.7264 percent.

The term deposit auction facility (TDF) was slightly oversubscribed yesterday as total tenders for the P100-billion auction amounted to P105.63 billion. The P40 billion seven-day tenor was oversubscribed as bids reached P69.41 billion.

However, both the 14- and 28-day term deposits were undersubscribed anew.

Bids for the 14-day term deposits amounted to P28.01 billion versus the reduced volume of P40 billion, while tenders for the 28-day tenor amounted to just P8.21 billion against the issue size of P20 billion.

The TDF is a key liquidity absorption facility, commonly used by central banks for liquidity management.

In the country, the TDF was launched in June 2016 as part of the shift to the interest rate corridor (IRC) framework.

“Since the adoption of the IRC system in 2016, our open market operations have become more effective in transmitting our monetary policy actions to the real economy,” BSP Governor Nestor Espenilla Jr. said.

Due to the BSP’s inability to issue its own debt instruments, the TDF acts by withdrawing a large part of the structural liquidity from the financial system to bring market rates closer to the BSP policy rate.

BSP Deputy Governor Diwa Guinigundo has said the shift to the IRC has been successful in keeping market rates within the band.

“They are supposed to be market driven. That (shift to IRC) was really meant to ensure that the volatility of interest rates is kept within the band and minimized,” Guinigundo said.