Term deposits fetch higher rates

MANILA, Philippines -  Term deposit continued to fetch higher yield as investors expect the US Federal Reserve to further raise interest rates this year.

The yield of the seven-day term deposits rose to 2.997 percent yesterday from last week’s 2.9896 percent as accepted yield ranged from 2.9 to 3.1 percent.

The longer dated 28-day term deposits fetched a higher yield of 3.3746 percent from 3.3028 percent as accepted rates ranged between 3.25 and 3.5 percent.

Bids for the seven-day term deposits yesterday amounted to P36.16 billion for the P30-billion issuance translating to a lower bid cover ratio of 1.2053.

On the other hand, the 28-day term deposits fell short again of the P150-billion offer size as tenders amounted only to P120.75 billion for a bid cover ratio of 0.8050 percent.

Total tenders for the P180 billion offering yesterday only amounted to P156.91 billion.

BSP Governor Amando Tetangco Jr. said banks continue to look for alternative investment outlets such as the retail treasury bonds (RTB) auctioned by the national government in search for higher yields.

“The auction results of lower subscriptions and slightly higher rates are as expected given the availability of fresh supply from the national government in terms of the RTBs,” he said.

Tetangco pointed out the BSP has decided to maintain the volume of the term deposit facility (TDF) at P180 billion composed of P150 billion worth of 28-day term deposits and P30 billion worth of seven-day term deposits until the second quarter.

“Banks are still looking toward shorter dated instruments, and, as expected, will try to squeeze as much yield from alternative investment outlets. These are all part of market dynamics which do not yet require any changes in the volumes of the BSP auction facilities,” he said.

The BSP chief said authorities would closely monitor liquidity levels in the financial system.

“The ultimate game plan is for banks to lend to the market for long-term project that will generate employment and increase wealth. The TDF is here to help steer interest rates and not to be an investment outlet,” he said.

BSP Deputy Governor Diwa Guinigundo said banks shifted their funds to the RTBs offered by the national government the other day.

He added the market is anticipating further adjustments in the US Fed interest rate after a 25 basis point increase imposed last March 14.

“Funds also went to the RTBs which fetched very attractive yields and as a result, the market went for the seven-day TDFs for more flexible positioning,” he added.

The Bureau of the Treasury successfully auctioned P70 billion worth of three-year RTBs that fetched an average rate of 4.027 percent.

The BSP launched the TDF as part of the shift to the interest rate corridor (IRC) system last June 3 as one of the facilities to mop up excess liquidity in the financial system. The IRC aims to bring market rates closer to the policy rates.

Term deposits are used as a tool to mop up excess liquidity in the financial system.