TDF bids lower, yields mixed at week’s auction

Published February 27, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

Banks bid lower for the 7-day and 14-day term deposit facility (TDF) of the central bank with total tenders including the longer-dated tenor amounting to P69.99 billion compared to P80.89 billion last week.

MB file photo.
MB file photo.

Based on Bangko Sentral ng Pilipinas (BSP) auction results, the 7-day TDF’s rate dropped to 5.1027 percent from 5.1248 percent last February 20. The P20-billion offer was still oversubscribed at P36.76 billion although lower than the previous week’s P38.12 billion.

Banks’ positioning pushed the 14-day yield’s higher at 5.1661 percent from 5.1659 percent last Wednesday. The bids exceeded the P20-billion offer at P21.87 billion but lower than last week’s P33.59 billion.

The 28-day TDF had the highest rate increase this week with 5.2017 percent compared to 5.1822 percent. Offered at P10 billion, bids amounted to P11.36 billion which was more than the previous Wednesday’s P9.18 billion.

TDF, first implemented in 2016 to guide market rates closer to the BSP policy rate, is primarily a liquidity management tool.

BSP Deputy Governor Diwa C. Guinigundo continues to assess that the financial system remains liquid with government’s sustained disbursement for infrastructure spending. These funds end up redeposited with banks for lending or placement with the central bank.

The BSP’s open market operations and the TDF in particular, while market-based and can be auctioned, is non-marketable and non-negotiable, unlike bonds which the BSP can now issue after its old authority to sell its own dept papers has been restored under the amended charter.

Guinigundo said that in the previous charter, the BSP was given limited collaterals in the form of government securities and they had to rely on the special deposit accounts or SDAs – which has been replaced by the TDF in 2016 – as a catch basin for excess liquidity since banks would rather park funds with the BSP to earn interests at less risks.

“But, SDAs were not marketable and negotiable, they were far from being market-based. In its place, TDFs, now in the 7-day, 14-day and 28-day tenors, were put in place. TDFs are more market-based, disposed through open tenders, and available every week. (However) TDFs remain non-marketable and non-negotiable even as under the interest rate corridor system, they have proven to be more effective and market friendly,” said Guinigundo.

The BSP’s ability to float its own bonds which are negotiable and marketable, will become a “critical element” in the deepening of the capital market, said Guinigundo.

He said the BSP “can move more quickly” such as in utilizing TDF as liquidity tool, for monetary stabilization. They can also collateralize BSP borrowings through the overnight reverse repurchase and the regular open market facility, said Guinigundo.