Strong demand for TDF; yields continue to drop

Published January 28, 2021, 5:30 AM

by Lee C. Chipongian

 With banks’ excess cash, the Bangko Sentral ng Pilipinas’ (BSP) weekly auction of term deposit facility (TDF) continue to be oversubscribed with total bids of P704.77 billion, although lower compared to the previous P756.71 billion.

Wednesday’s TDF was offered at P610 billion, up from P570 billion last week.

BSP Deputy Governor Francisco G. Dakila Jr. reiterated the “sustained strong demand for the TDF” because of the financial system’s “ample liquidity” as cash holdings normalize after the holiday hoarding.

The 7-day TDF was offered higher this week at P230 billion from P210 billion on January 20. The BSP received P272.50 billion bids, lower from the previous P291.49 billion. The average rate fell to 1.6220 percent from 1.6325 percent.

The 14-day tenor also has a higher volume of P380 billion from P360 billion. It attracted P432.27 billion tenders, also lower than last week’s P465.22 billion. The average rate dropped to 1.6400 percent from 1.6534 percent.

“Both tenors were oversubscribed with the 7-day and 14-day TDF receiving 1.18x and 1.14x their respective offered volumes. Total tenders reached P704.77 billion, in line with the BSP’s expectation,” said Dakila.

As for the yields, these fell with demand. “The weighted average interest rates continued to decline from last week’s rates amid sustained strong demand. The WAIR for the 7-day TDF decreased by 1.057 bps (basis points) … while that for the 14-day TDF fell by 1.335 bps,” noted Dakila. He added that the accepted yields were lower for the 7-day TDF of 1.588-1.640 percent, and narrower for the 14-day TDF of 1.600-1.653 percent.

The BSP has yet to return the 28-day TDF which was last offered on September 30, 2020.

The TDF is one of BSP’s liquidity absorption tool. It complements its securities facility which also withdraws a large part of structural liquidity surplus to bring market rates closer to the policy rate.

As part of COVID-19 response, the BSP implemented liquidity enhancing measures to inject about P2 trillion into the financial system or about 10 percent of nominal GDP as of end-2020.

The TDF and the BSP securities facility have mopped up most of this excess liquidity.