Mixed TDF rates, bids this week

The central bank’s term deposit facility (TDF) auction this week had “good demand” but overall bids were lower compared to the previous auction.

“(There’s) good demand for the TDF (and) auction results reflect market participants’ search for yield in the longer tenor amid sustained stable market conditions, supported by ample liquidity in the financial system,” said Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila Jr. on Wednesday, Oct. 27.

BSP Deputy Governor Francisco G. Dakila Jr.

The BSP offered P480 billion TDF volume this week, up from Oct. 20’s P460 billion. Total bids received of P548.93 billion was lower than the previous week’s P585.62 billion, but Dakila said the tenders were “well within the BSP’s expected volume range.”

The 7-day tenor’s bid coverage ratio dropped to 1.1041 versus 1.5966 last week, while for the 14-day, it was up at 1.1634 from 1.1166.

“The TDF auction was oversubscribed as the 7-day and 14-day tenors received bids equal to about 1.10x and 1.16x their respective offer volume,” said Dakila.

The 7-day TDF, offered higher at P160 billion from P150 billion (Oct. 20) received P176.65 billion bids. This was lower than P239.49 billion last week. The yield rose to 1.7521 percent from 1.7355 percent, or up by 1.660 basis points.

The 14-day TDF also has a higher offer of P320 billion compared to the previous P310 billion. Bids amounted to P372.28 billion, up from P346.13 billion last week. The average interest rate dropped to 1.7723 percent from 1.7745 percent, or down by 0.22 basis point.

“Compared to the previous auction, the yields accepted in the 7-day TDF remained low but widened to a range of 1.7000-2.0000 percent while that for the 14-day TDF shifted higher but narrowed to a range of 1.7300-1.8000 percent,” said Dakila.

The TDF is the central bank’s key liquidity absorption facility. In previous years when the BSP was unable to issue its own securities, the TDF was siphoning off a large chunk of the financial system’s structural liquidity surplus to bring market rates closer to the benchmark rate.

In September last year, the BSP finally launched its securities facility but the TDF was still withdrawing the bigger portion of excess liquidity.