TDF undersubscription shows short-term bias

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Central bank sees no liquidity tightening

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The weekly auction of P180-term deposit facility (TDF) failed to draw enough bids for the longer tenor, but with the 7-day tenor attracting more than the P30-billion offer, the central bank said.

Overall, the Bangko Sentral ng Pilipinas (BSP) awarded just more than P179 billion at the Wednesday auction, short of the total P180-billion offer.

For the 7-day tenor, bids reached P39.18 billion, prompting the BSP to award the government’s full offer of P30 billion.

Bids for the 28-day facility totaled only P140.76 billion – short of the P150-billion offer. The BSP awarded P140.76 billion.

The interest rate for the seven-day facility rose to 2.9896 percent from 2.9823 percent, while that for the 28-day tenor fell to 3.3028 percent from 3.3249 percent.

“There is more preference for the seven-day instrument because the market is positioning for any opportunistic short-term propositions,” BSP Deputy Governor Diwa Gunigundo said in a text message to reporters.

Gunigundo also said that the less than 1 percent bid-to-cover ratio for the 28-day tenor does not necessarily imply that market liquidity is tightening.

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.

The bid-to-cover ratio for the 28-day tenor dropped to 0.9384 from 1.1793 the previous week. The seven-day bid-to-cover ratio also fell to 1.3062 from 1.3708 a week ago.

“We observe that of the P990 billion SDA [special deposit account]during the interest rate corridor system launch in June 2016, only less than P800 billion has been siphoned off through the seven- and 28-day TDF,” Guinigundo said.

This means more than P200 billion is out there in the market funding loans, investments, foreign exchange (FX) purchases and government spending, the BSP deputy governor said.

“Should there be actual liquidity tightening, all that the banks have to do is to withdraw from the liquidity facilities of the BSP to fund loans, investments, FX purchases and even public spending on power and infrastructure,” he added.

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