TDF yield slips before CPI data

THE AVERAGE YIELD on the Bangko Sentral ng Pilipinas’ (BSP) term deposits continued to slip week on week as demand for safer assets remained strong, with rate hike bets growing as inflation likely stayed elevated last month.

Bids for the term deposit facility (TDF) amounted to P157.445 billion on Wednesday, exceeding the P90 billion placed on the auction block and the P141.071 billion in tenders for the same volume of seven-day papers auctioned off last week.

This translated to a higher bid-to-cover ratio of 1.7494 times from the 1.5675 ratio logged last week.

With this, the BSP awarded its entire P90-billion offer as it noted in a statement that the “auction saw good demand.”

Accepted rates for the one-week papers slightly narrowed to the 4% to 4.4665% range from 4% to 4.477% in the previous auction. This caused the average accepted rate of the seven-day deposits to slip by 0.42 basis point week on week to 4.4388% from 4.443%.

“The seven-day BSP TDF auction average yield again marginally lower despite the longer tenor of seven days versus the previous week’s six days amid excess peso liquidity in the financial system, as manifested by higher total bids of P157.445 billion versus last week’s P141.071 billion,” Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message.

Term deposit yields also fell ahead of the release of the May consumer price index (CPI) data on Friday, he said, which the market expects to show that costs remained elevated amid the ongoing conflict in the Middle East.

Still, recent rollbacks in local pump prices could ease inflationary pressures, he added.

Headline inflation may have picked up to 7.9% in May as the Middle East war continued to push up oil and food prices as well as weaken the peso, according to a median estimate in a BusinessWorld poll of 16 economists conducted last week.

If realized, this would mark the third straight month of acceleration and would be the fastest pace seen since the 8.6% in February 2023.

The central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market yields towards its policy rate.

The BSP last auctioned off both the seven-day and 14-day deposits on Oct. 29. It has not offered 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.

In its latest Monetary Policy Report, the central bank said it has limited its TDF offerings to a single tenor to rationalize its liquidity operations and focus on tenors that would boost monetary policy transmission.

As of mid-February, the BSP’s market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the TDF. — Katherine K. Chan