The central bank’s auction of term deposit facility (TDF) this week still show an oversubscription but banks’ demand for the longer tenor, the 14-day, surpassed the 7-day TDF.
“There was a notable shift of preference to the longer tenor as the 7-day TDF was undersubscribed with 0.86x the offer volume,” said Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr. He also noted that the 14-day tenor remained oversubscribed with 1.5x of its offer volume.
During Wednesday’s auction, total tenders reached P593.99 billion versus P552.97 billion last October 28.
The 7-day TDF, still offered at P220 billion, attracted P189.03 billion which was lower than P227.44 billion last week. Its average rate increased to 1.9540 percent from 1.9373 percent last week.
The 14-day TDF, also the same volume at P270 billion, had P404.95 billion tenders this week compared to P325.52 billion previously. The average rate for this tenor was up at 2.0454 percent from 2.0337 percent.
Dakila said the there is “sustained market demand for the TDF” even though the 28-day TDF is still not offered. The longest-dated TDF was last auctioned off October 7. It is set aside in favor of demand for the 28-day BSP bills which was first issued on September 18. When it was being issued at the same time – Wednesdays for TDF and Fridays for the securities – its yields and volume mirror each other.
Dakila said the average interest rates for the 7-day and 14-day tenors continued to rise from last week with the 7-day TDF rate up by 1.673 basis points (bps) while the 14-day TDF rate was higher by 1.165 bps. “The range of accepted yields remained narrow for the 7-day tenor at 1.880-2.100 percent but were narrower for the 14-day TDF at 1.875-2.123 percent,” he added.
The BSP official reiterated that the TDF auction show ample liquidity in the financial system.
As of the end of the third quarter, the BSP has siphoned off P1.8 trillion of bank liquidity.
The TDF, with the overnight deposit facility, mopped up a big chunk of this liquidity, accounting for 80.2 percent of the total, or about P1.44 trillion.
The TDF was introduced in June of 2016 as part of the interest rate corridor framework. The BSP
securities facility was launched in September but is only offering one-month BSP bills.
Both the TDF and BSP securities are tasked to mop up structural liquidity surplus or excess money from the financial system to bring the BSP rate closer to the market rate.