TDF still oversubscribed; yields fell

Published November 25, 2020, 5:00 PM

by Lee C. Chipongian

The central bank’s auction of term deposit facility (TDF) remained oversubscribed while yields dropped after the Monetary Board’s 25 basis points (bps) policy rate cut last week.

Data from the Bangko Sentral ng Pilipinas (BSP) showed P602.03 billion tenders were submitted versus offer of P460 billion for the TDF. Both numbers are lower compared to November 18’s P645.58 billion tenders against a P500 billion offer.

The 7-day TDF was offered at P170 billion on Wednesday, down from P190 billion  previously. The tenor received P193.53 billion tenders, lower than P230.85 billion last week. The average rate fell to 1.7479 percent from 1.9813 percent.

The 14-day tenor also has a lower volume this week of P290 billion from P310 billion. Banks bid P408.50 billion for the two-week TDF, but it was lower compared to P414.73 billion last November 18. The average rate declined to 1.7326 percent from 1.9984 percent.

The BSP has yet to resume offering of the 28-day TDF which was last auctioned on September 30. It’s been sidelined in favor of the 28-day BSP bills which was first introduced on September 18. When they were offered at the same time, the 28-day TDF and the 28-day BSP securities mirrored each other’s volumes and yields.

Last Thursday, November 19, in a surprised move the BSP reduced the policy rate by 25 bps to its record-low of two percent. The Monetary Board decided to cut the rates – now a cumulative 200 bps since the pandemic began – to boost market confidence amid fears that COVID-19 cases are rising once more, globally and locally.

The real interest rates, which is below the inflation average of 2.5 percent, is in the negative territory, and BSP continues to see interest rates to remain low, inflation to be manageable and a stable peso.

In its latest “Market Call” report, the Metrobank-affiliate First Metro Investment Corp. and its partner UA&P Capital Markets Research said they had expected the BSP’s recent policy rate cut as “money growth has decelerated unto September indicative of the heightened risk- aversion of banks towards more lending (and) this should also bring BSP’s policy rate closer to 91-day T-bill yields.” As for the exchange rate, FMIC said the “dollar-peso rate could be on hold at present levels as foreigners’ return to the local stock market and seasonal OFW remittances may offset the US dollar’s gains with the latter muddled by US election uncertainties.” They predict the peso to end at P49.88:$1