TDF offer undersubscribed P129B vs P180B

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THE auction of P180-billion term deposit facility (TDF) on Thursday failed to draw enough subscriptions, reflecting what the central bank said could be a seasonal factor—banks keeping cash ahead of the holidays—and the impact of regulatory restrictions on trust entities’ access to government deposit facilities as investment outlets.

The Bangko Sentral ng Pilipinas (BSP) awarded just over P129 billion at the auction, short of the P180-billion government offer.

Bids in the six-day tenor reached P15.86 billion, lower than the P30 billion offer. Twenty-seven-day bids, at P113.21 billion, also fell short of the P150 billion offer.

Interest rates rise
The interest rate for the six-day facility rose to 2.60 percent from 2.27 percent, while that of the 27-day tenor rose to 2.95 percent from 2.80 percent last week.

“There was undersubscription at the auction today. Possible reasons include seasonality (banks holding on to cash for the holidays), and the withdrawal of trust accounts from BSP facilities,” BSP Governor Amando Tetangco Jr. told reporters in a text message on Thursday.

The BSP previously announced that starting July next year, trust entities could no longer access deposit facilities as investment outlets, aiming to keep the facilities purely as tools for liquidity management.

The new rule takes effect on July 1, 2017 but the BSP said the Monetary Board (MB) approved a phased implementation of the restrictions to ensure an orderly transition.

Tetangco suspects such rule may have brought down the bid-to-cover ratio to 0.5288 and 0.7548 for the six-day and 27-day tenors, respectively.

The bid-to-cover ratio compares the number of total bids with the acceptable bids. The higher the ratio, the more the auction is considered oversubscribed.

As forecast
The latest auction results are consistent with the view of Bank of the Philippine Islands (BPI) Vice President and lead economist Emilio Neri Jr. that trust entities’ restricted access to BSP deposit facilities could push the TDF yield rates higher.

“Trust companies will have to deploy their funds elsewhere, including the local bond and equity markets,” he said earlier.

Liquidity ‘non-inflationary’
Despite this, the BSP governor said monetary authorities see the level of liquidity in the system as still healthy and non-inflationary.

“We, nevertheless, remain watchful of external developments that may affect domestic liquidity through shifts in capital flow direction and magnitude,” he said.

The latest auction results are consistent with the view of Bank of the Philippine Islands (BPI) Vice President and lead economist Emilio Neri Jr. that trust entities’ restricted access to BSP deposit facilities could push the TDF yield rates higher.

“Trust companies will have to deploy their funds elsewhere, including the local bond and equity markets,” he said earlier.

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