Yields on term deposits go down

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YIELDS ON THE central bank’s term deposits continued to slip on Wednesday as they tracked rates of benchmark US Treasuries and as investors expect the government to borrow less following its offshore bond issuance last month.

Total bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) hit P741.224 billion on Wednesday, exceeding the P550-billion offer but lower than the P771.292 billion in tenders logged during the previous week’s auction.

Broken down, tenders for the seven-day term deposits stood at P215.972 billion, surpassing the P160-billion auctioned off by the BSP but failing to beat the P216.209 billion in bids seen a week ago.

Banks asked for yields ranging from 1.7% to 1.7175%, a slimmer margin compared with the 1.7% to 1.729% band a week ago. This caused the average rate of the one-week papers to inch down by 0.79 basis point (bp) to 1.7097% from 1.7176% on July 7.

For the 14-day deposits, bids amounted to P525.252 billion on Wednesday, going beyond the P390-billion offer but below the P555.083 billion seen last week.

Accepted rates for the tenor ranged from 1.75% to 1.7975%, a thinner band versus the 1.75% to 1.8144% seen in the previous week’s auction. With this, the average rate of the two-week papers dropped by 1.97 bps to 1.7817% from 1.8014% previously.

For the 38th straight week, the BSP did not offer 28-day term deposits to give way to its weekly offerings of bills with the same tenor.

The central bank uses the TDF and its short-term bills to gather excess liquidity in the financial system and to better guide market rates.

The lower yields fetched for the BSP’s term deposits on Wednesday reflect the direction of benchmark US Treasuries, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Bond yields jumped on Tuesday as the biggest hike in US inflation in 13 years rattled investors who fear rising interest rates could end a stock market rally that has doubled prices from 2020 lows, Reuters reported.

The yield on US Treasury debt initially fell on news the US consumer price index (CPI) in June jumped 5.4% year over year, the largest gain since August 2008, the Labor department said.

But a weak Treasury auction sparked a 4.7-basis-point jump in the benchmark 10-year note to 1.41% after initially falling to 1.343% after the CPI data was released.

The inflation spike followed a 5.0% increase in the 12 months through May, while CPI rose 0.9% month over month after advancing 0.6% in May, gains that unnerved investors.

Mr. Ricafort added that investors continued to price in the government’s latest offshore bond issuance, which they believe could reduce the need for local borrowings.

The Philippines last month raised $3 billion (P146 billion) from the sale of US dollar-denominated global bonds in a dual-tranche offering, which will be used to fund the national budget. The 25-year tranche raised $2.25 billion, while the 10.5-year tranche generated $750 million.

The Treasury wants to borrow P3 trillion from local and foreign sources this year to fund its budget deficit seen to widen to 9.3% of the country’s gross domestic product.

Economic managers set an 85:15 borrowing mix for the year in favor of domestic sources to minimize risks from foreign exchange volatility and other external developments. — L.W.T. Noble