Term deposit yields slip on Fed rate cut bets

Yields on the central bank’s term deposit facility dipped on Wednesday after the US Federal Reserve signaled that it would cut rates in 2024.

The central bank’s term deposit facility (TDF) attracted bids amounting to PHP 324.325 billion on Wednesday, above the PHP 230 billion on the auction block but lower than the PHP 391.323 billion seen a week ago for a PHP 270-billion offer.

Broken down, tenders for the seven-day papers reached PHP 194.105 billion, higher than the PHP 120 billion auctioned off by the central bank and the PHP 215.64 billion in bids for a P140-billion offer seen the previous week.

Banks asked for yields ranging from 6.6% to 6.65%, narrower than the 6.59% to 6.6875% band seen a week ago. This caused the average rate of the one-week deposits to decline by 2.98 basis points (bps) to 6.6329% from 6.6627% previously.

Meanwhile, bids for the 14-day term deposits amounted to P130.220 billion, higher than the PHP 110-billion offering but lower than the PHP 175.683 billion in tenders for a PHP 130-billion offer seen on Dec. 13.

Accepted rates were from 6.625% to 6.68%%, narrower than the 6.6% to 6.6975% margin recorded a week ago. With this, the average rate for the two-week deposits inched down by 1.93 bps to 6.6563% from the 6.6756% logged in the prior auction.

The Bangko Sentral ng Pilipinas has not auctioned off 28-day term deposits for three years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the 28-day bills are used by the central bank to mop up excess liquidity in the financial system and to better guide market rates.

TDF yields went down on Wednesday as the US central bank has finally signaled that it would cut rates by 75 bps in 2024, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US central bank kept the Fed funds rate steady at the 5.25%-5.5% range for a third straight time during its last meeting for the year on Dec. 12-13.

It raised rates by a total of 525 bps from March 2022 to July 2023.

The Federal Open Market Committee will hold its first policy meeting for 2024 on Jan. 30-31.

“Thus, any Fed rate cuts for 2024 could be matched locally and could lead to lower local interest rates, bond yields, and borrowing costs/financing costs for consumers, businesses/industries, government, and other institutions,” Mr. Ricafort added.

The BSP last week kept its policy rate steady at a 16-year high of 6.5% for a second straight meeting but said it remained cautious amid lingering upside risks to inflation.

The Monetary Board has raised benchmark interest rates by 450 bps since it began its tightening cycle in May 2022. — Aaron Michael C. Sy