BSP’s TDF attracts lower bids, higher rates this week

Published August 10, 2022, 3:37 PM

by Lee C. Chipongian

The central bank’s term deposit facility (TDF) was offered at a higher volume on Wednesday, Aug. 10 of P350 billion from the previous P330 billion, but it attracted less bids with the market preference for the shorter-dated tenor.

Total tenders amounted to P335.34 billion which was lower compared to the Aug. 3 auction of P390.94 billion, based on Bangko Sentral ng Pilipinas (BSP) data.

Bank teller counting P1,000 bills/Bloomberg photo

The 7-day tenor was offered at P180 billion, more than last week’s P170 billion. Bids reached P196.19 billion, lower than P218.96 billion previously. The average rate rose to 3.5623 percent from 3.5089 percent. The bid coverage ratio stood at 1.0900.

The 14-day TDF, meantime, was undersubscribed this week. It was offered at P170 billion, also higher than last week’s P160 billion. Tenders amounted only to P139.15 billion against the volume.

The tenor received higher bids last week of P171.98 billion. The yield increased to 3.6762 percent from 3.5723 percent. The bid coverage ratio was at 0.8185.

“The results of the TDF auction reveal that eligible participants are pricing in another policy rate hike by the BSP,” according to BSP Deputy Governor Francisco G. Dakila Jr. in a commentary on Wednesday.

“At the same time, there is preference for the shorter tenor as market anticipates the issuance of the Retail Treasury Bonds towards the end of the month,” he added.

BSP Governor Felipe M. Medalla has signalled that they will again raise the policy rate next week, possibly by another 50 basis points (bps), following the 6.4 percent July inflation rate announcement last Friday.

Dakila said there was an observed market preference for the 7-day TDF which received bids 1.09x the offering while the 14-day TDF was slightly undersubscribed with bids received at 0.82x the offer volume.

“The weighted average interest rates (WAIR) for both tenors continued to rise. The 7-day TDF rate increased by 5.3451 bps to 3.5623 percent as the 14-day rate rose by 10.3955 bps to 3.6762 percent,” said Dakila.

The BSP’s accepted yields for both tenors ranged from 3.3800 percent to 3.6888 percent in the 7-day tenor and 3.4800 percent to 3.7500 percent in the 14-day.

The BSP has raised its key rate by 125 bps so far since May 19, bringing the key rate from two percent to 3.25 percent by July 14 to reanchor inflation expectations.

The TDF is a liquidity mopping-up tool implemented by the central bank to control and manage inflation.