Yields on term deposits decline as markets expect policy easing

Yields on the Bangko Sentral ng Pilipinas’ (BSP) term deposits dropped on Wednesday amid lower US Treasury rates and expectations of monetary policy easing next year.

Demand for the BSP’s term deposit facility (TDF) amounted to PHP 279.725 billion on Wednesday, lower than the PHP 280-billion offer and the PHP 318.596 billion in tenders seen a week earlier for the same amount on the auction block.

BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday that the market preferred the shorter tenor in the central bank’s term deposit facility this week.

“Only the 7-day tenor was oversubscribed, with the respective bid-to-cover ratios for the 7-day and 14-day tenors at 1.0664x and 0.9092x,” Mr. Dakila said.

The seven-day term deposits fetched bids amounting to PHP 170.616 billion, surpassing the PHP 160 billion auctioned off by the BSP but below the PHP 179.347 billion in tenders logged the previous week.

Accepted rates for the tenor ranged from 6.56% to 6.6%, a tad wider than the 6.578% to 6.6% band logged a week ago. This caused the average rate of the one-week deposits to slip by 0.34 basis point (bp) to 6.5902% from 6.5936% previously.

Meanwhile, demand for the two-week deposits amounted to P109.109 billion, below the P120-billion offer as well as the P139.249 billion in bids seen in the previous auction.

Banks asked for yields from 6.57% to 6.62%, slightly wider than the 6.5780% to 6.61% range seen last week. This caused the average rate of the paper to dip by 0.16 bp to 6.5984% from the 6.6% quoted on Aug. 23.

The BSP has not auctioned off 28-day term deposits for more than two 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.

“The results of today’s TDF auction reflected market participants’ lingering preference for the shorter tenor amid the need to attend to client requirements,” Mr. Dakila said.

“Looking ahead, the BSP’s monetary operations will continue to be guided by its assessment of prevailing liquidity conditions and market developments,” he added.

TDF yields were slightly lower on Wednesday as US Treasury yields slumped on Tuesday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The two-year US Treasury yield went down by 18 bps to 4.871% on Tuesday, before recovering to around 4.91% in Asian trading hours, Reuters reported.

The 10-year yield inched up to 4.1354% from Tuesday’s low of 4.106%.

TDF yields were lower as market players expect the Monetary Board to cut policy rates in the first quarter of 2024, Mr. Ricafort added.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank remains hawkish, and rate cuts are far off as inflation is still elevated.

The Monetary Board kept benchmark interest rates steady for a third straight meeting this month, leaving its key policy rate unchanged at a near 16-year high of 6.25%.

The central bank raised borrowing costs by 425 bps from May 2022 to March 2023 to tame inflation.

The BSP will hold its next policy meeting on Sept. 21. — Keisha B. Ta-asan with Reuters