Preference for shorter tenor shows in swamped term deposit auction

MANILA, Philippines — Yields on term deposits floated by the Bangko Sentral ng Pilipinas (BSP) moved mixed during yesterday’s  auction as banks placed most of their excess funds in the shorter tenor.

The seven-day tenor fetched a lower rate of 5.0447 percent yesterday from last week’s 5.0638 percent.

On the other hand, the rate of the 14-day term deposits rose to 5.1437 percent from 5.1290 percent, while that of the 28-day tenor increased to 5.1547 percent from 5.1339 percent.

Overall, the liquidity absorption facility was oversubscribed as bids reached P60.82 billion against the offered volume of P50 billion. All three tenors were oversubscribed.

Banks placed most of their excess funds in the seven-day tenor, with tenders amounting to P30.15 billion as against the issue size of P20 billion.

Likewise, the 14-day term deposits were slightly oversubscribed as bids amounted to P20.16 billion versus the P20 billion offering, while the tenders for the P10-billion issuance reached P10.51 billion.

BSP Deputy Governor Diwa Guinigundo has said the term deposit facility has been oversubscribed since the start of the year as liquidity continued to return in the financial system after the long holidays during Christmas and New Year.

 “After a seemingly tight liquidity condition given the undersubscription during the holidays, we saw large oversubscription right after New Year as funds withdrawn during Christmas and New Year began to return to the banks themselves. With excess funds, the banks placed more deposits with the BSP,” he said.

Guinigundo said oversubscriptions would be reduced in the coming weeks as excess funds have been siphoned off by the central bank facilities as well as the fund raising activity by the national government through the Bureau of Treasury (BTr).

The Treasury is set to issue P360 billion worth of Treasury bills (T-bills) and Treasury bonds (T-bonds) in the first quarter of the year as part of its borrowing program for the year.

Early this month, the Philippines raised $1.5 billion through the issuance of 10-year global bonds when it returned to the offshore debt market.

The central bank’s Monetary Board decided to keep interest rates unchanged last Dec. 13, pausing from a tightening episode that saw rates rise by 175 basis points in five straight rate-setting meetings since May this year to rein in inflation.

Inflation surged to 5.2 percent last year from 2.9 percent in 2017 due to higher oil and food prices as well as the weak peso. It slowed down to 5.1 percent in December after peaking at a near-decade high of 6.7 percent in September and October.