Bids in TDF drop

MANILA- Lower bids in the central bank's term deposit facility (TDF) and the resulting hike in yields in last week's auction were not bad at all following the government's sale of retail treasury bond (RTB), Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said.

In a text message to reporters Wednesday, Tetangco said such lower bids Wednesday and the succeeding increase on its yields are not with surprise in light of the successful RTB auction, which continued to indicate market appetite for relatively short dated paper with good value.

The Bureau of the Treasury (BTr), on March 28, sold a total of Php 70 billion worth of three-year RTBs to banks, which in turn were scheduled for offering until April 6, 2017.

The debt paper, which are intended for small investors through a minimum of Php 5,000 placements, fetched a coupon rate of 4.25 percent.

RTBs fetch higher yields than regular time deposits and earn a fixed interest rate based on current market rates, with returns given on a quarterly basis.

Tetangco said that as the funds generated in the RTB will eventually end up funding projects of the NG (national government) we do not see this take up by the NG as causing undue tightness in liquidity.

Nevertheless, we will monitor liquidity conditions to see if there is need to make adjustments in the operational features of the TDF and/or other measures, he added.

This week's TDF auction showed undersubscription both for the seven-day and 28-day facilities.

BSP data show that banks offered Php 21.335 billion for the shorter-dated facility, lower than the Php 30 billion offering. The auction committee, in turn, accepted all the bids.

The seven-day facility's bid coverage ratio fell to 0.7118 from last week's 1.2053.

Accepted yield was between a range of 2.9000 percent to 3.5000 percent while weighted average accepted yield stood at 3.0478 percent.

The 28-day facility received bids amounting to Php 149.921 billion, also below the Php 150 billion offering. It was also awarded based on the total bids.

Bid coverage ratio, however, improved to 0.9995 from last week's 0.8050 because bids for this week were higher than last week's Php 120.754 billion.

Weighted average accepted yield stood at 3.4208 percent from the accepted yield range of 3.3000 percent to 3.5000 percent.

BSP Deputy Governor Diwa Guinigundo, in a text message, said the low bids in this week's TDF auction showed the continuing preference for short dated placements with the BSP.

While uncertainty seems to have eased a bit, much of it remains with what is expected to happen in the US Fed (Federal Reserve) and public policy of the Trump administration, he said.

Market players expect additional two to three rate increase from the Fed this year after last March's 25 basis point rate hike, which brought the current Fed fund rate to a range between 0.75 to one percent.

Probability of a rate increase in June has risen to above 50 percent to date.

Guinigundo said oil dynamics adds more uncertainty as this goes to the heart of economic growth of oil exporters and inflation outlook of many economies particularly emerging markets.

He, however, stressed that TDF remains effective in mopping up liquidity from the system and ensuring consistency with growth and inflation targets.

TDF is part of the Interest Rate Corridor (IRC) , which the central bank started to implement in June 2016 to help the BSP better manage inflation and promote long-term sustainable growth as well as enhance the link between the central bank's policy stance and the real economy.

Source: Philippines News Agency