TDF oversubscribed anew after holidays

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THE term deposit facility (TDF) auction was oversubscribed again on Wednesday, following undersubscription in the longer tenor last week, as the effects of the holiday slowdown and the December 14 US Federal Reserve rate hike diminished, the central bank reported.

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The Bangko Sentral ng Pilipinas (BSP) fully awarded the P180-billion TDF. total bids for the seven- and 28-day facilities reached over P260 billion.

Bids in the seven-day tenor totaled P43.99 billion, while the 28-day facility garnered P217.52 billion.

The interest rate for the seven-day facility rose to 3.07 percent from 3.04 percent, while that for the 28-day tenor fell to 3.37 percent from 3.46 percent.

“This is the first oversubscription for the 28-day tenor since December 7 and lower maximum rate of 3.5 percent,” BSP Governor Amando Tetangco Jr. told reporters in a text message on Wednesday.

He said this could have been because of market normalization after the holidays and the result of last month’s US Federal Open Market Committee meeting.

“We will continue to monitor price action in the auctions to see if there is need to adjust policy levers,” the BSP chief said.

BSP Deputy Governor Diwa Guinigundo said that as the BSP had indicated, there appeared to be tight liquidity during the holidays because banks prepared for higher cash demand from their clients. Thus, their placements with the BSP facility took a nosedive.

“This was reflected in lower bid-to-cover ratio. That is the essence of seasonality,” he said.

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

At Wednesday’s auction, he noted that more cash was deposited again with the banks, resulting in higher propensity to make placements with the BSP.

“Thus, bid-to-cover ratio for the seven-day tenor remains above 1 but higher compared to the levels during the holiday season. In the case of the 28-day tenor, bid-to-cover ratio is back to higher than 1 after three weeks of moving under 1,” he said.

The bid-to-cover ratio for the 28-day TDF rose to 1.45 percent from 0.74 percent last week. The ratio for the seven-day TDF also rose to 1.46 percent from 1.26 percent the previous auction.

Providing his view on the different interest rate directions of the tenors, Guinigundo said there was greater awareness among banks that part of the Interest Rate Corridor (IRC) convention is that a TDF bid outside the corridor will not be considered.

“These throwaway bids were observed for the 28-day tenor and this morning’s auction reflects the learning curve of the market. Bidders for the TDFs realize the premium for longer maturity but the discipline of the IRC system is their binding constraint,” he said.

Because of the BSP’s inability to issue its own debt instruments, the TDF is meant to withdraw a large part of the structural liquidity from the financial system to bring market rates closer to the BSP’s 3-percent policy rate.

In the IRC, interest rates for the standing liquidity facilities like the TDF form the upper and lower bounds of the corridor while the overnight repurchase rate of 3 percent is set at the middle of the corridor.

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