Yields on term deposits slip amid weak demand

Yields on the Bangko Sentral ng Pilipinas’ (BSP) term deposits slipped on Wednesday as they went undersubscribed after the government raised a record amount from its retail Treasury bond (RTB) offering, resulting in decreased market liquidity.

Demand for the central bank’s term deposit facility (TDF) hit PHP 190.891 billion on Wednesday, lower than the PHP 210 billion on the auction block. It was also below the PHP 342.737 billion in bids seen last week for PHP 310 billion on offer.

Tenders for the one-week term deposits reached PHP 115.931 billion, failing to meet the PHP 120-billion offer as well as the PHP 235.287 billion in bids for a PHP 180-billion offer in the previous auction.

Banks asked for yields ranging from 6.51% to 6.85%, wider than the 6.5% to 6.5835% band seen on Feb. 21. The average rate for the seven-day debt dipped by 1.06 basis points (bps) to 6.565% from 6.5756% the previous week.    

Meanwhile, the 14-day deposits attracted PHP 74.96 billion in bids, also lower than the PHP 90 billion sold by the central bank and the PHP 107.450 billion in tenders seen for the PHP 130-billion offering last week.

Accepted rates for the two-week debt ranged from 6.575% to 6.625%, a tad wider than the 6.58% to 6.625% seen last week. This caused the tenor’s average rate to inch down by 0.93 bp to 6.5948% from 6.6041% previously.

The BSP has not auctioned off 28-day term deposits for more than three years to give way to its weekly offerings of securities with the same tenor.

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

Yields on the term deposits slipped following the government’s record-high RTB issuance, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

The government raised a record PHP 584.86 billion from its offering of five-year RTBs, exceeding the Bureau of the Treasury’s (BTr) PHP 400-billion target. The bonds were settled on Wednesday.

The government initially raised PHP 212.719 billion through the RTB 30 during the rate-setting auction.

It raised an additional PHP 372.14 billion during the nine-day public offer period. Of this amount, the government raised PHP 243.45 billion from the bond switch program, while PHP 128.69 billion came from new money.

The five-year RTBs fetched a coupon rate of 6.25%, 12.5 bps higher than the 6.125% quoted for the five-and-a-half-year RTBs offered in February 2023, but were lower than the government’s expectations.

Mr. Ricafort said the record-high RTB issue could “mop up some of the excess peso liquidity in the financial system for the meantime and could lead to some increase in the supply of government securities in the market.”

It also gives the government greater flexibility to accept or reject high bid yields at its auctions, he added.

The government’s borrowing program for this year is set at PHP 2.4 trillion, with PHP 1.85 trillion to be raised from the domestic market and PHP 606.85 billion from foreign sources.

It borrows to help fund its budget deficit, which is capped at 5.1% of gross domestic product this year or PHP 1.39 trillion. — Keisha B. Ta-asan