Yields on BSP's One-Week Term Deposits Edge Up as Demand Weakens Further
Key Takeaways
- •The BSP's seven-day term deposit auction drew P95.493 billion in bids, falling short of the P120 billion offered and below the previous week's P114.324 billion in tenders.
- •The bid-to-cover ratio declined to 0.7958 from 0.9527, indicating softer demand for the central bank's one-week deposits.
- •The central bank awarded only P95.408 billion, about P85 million less than the total amount tendered.
- •Accepted rates ranged from 4.96% to 5.035%, pushing the weighted average accepted rate up 1.01 basis points to 5.0066% from 4.9965%.
- •As of mid-August, the BSP's market operations had absorbed P975.4 billion in excess liquidity, with 12.3% withdrawn through the term deposit facility.
Yields on the Bangko Sentral ng Pilipinas' (BSP) one-week term deposits climbed further on Wednesday as the papers attracted weaker market demand.
The seven-day term deposit facility (TDF) auction drew total bids of P95.493 billion, falling short of the P120 billion placed on the block. Tenders also came in below the P114.324 billion recorded in the previous week's auction, which carried the same offer volume. In these weekly auctions, financial institutions bid to place surplus funds with the central bank for seven days at the rates they propose, and the BSP determines how much of the offer to award.
The result translated into a bid-to-cover ratio of 0.7958 times, down from the 0.9527 ratio logged at the prior auction. A ratio below 1.0 means tenders fell short of the full offering, making it a widely followed gauge of demand at central bank auctions.
Faced with softer demand and climbing yields, the central bank capped the bids it awarded at P95.408 billion — about P85 million less than the total tenders submitted.
Accepted rates on the one-week papers ranged from 4.96% to 5.035%, a band that was narrower but higher than the 4.95% to 5.03% range fetched a week earlier. This pushed the weighted average accepted rate of the TDF up by 1.01 basis points (bps) to 5.0066% from 4.9965%.
The BSP uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market yields toward its policy rate. It has limited its TDF offerings to a single tenor to rationalize its liquidity operations and focus on the tenor that would boost monetary policy transmission.
As of mid-August, the BSP's market operations had absorbed P975.4 billion in excess liquidity from the market, with 12.3% of that amount siphoned off via the term deposit facility.
The central bank also said that interest rates on its seven-day term deposits now fully reflect the two 25-bp hikes it delivered in April and June, which lifted the benchmark rate to 4.75%. At 5.0066%, the weighted average accepted rate now sits about 25.7 bps above that benchmark, and the next weekly auction will provide a further reading on demand for the facility.
— Katherine K. Chan
