Yields on term deposits slip on dovish Fed bets

YIELDS on the central bank’s term deposits inched down on Wednesday as market players now expect a smaller rate increase from the US Federal Reserve at its meeting at the end of this month.

The term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) fetched bids amounting to P404.159 billion on Wednesday, well above the P350 billion on the auction block and the P377.197 billion in tenders seen for the P390-billion offer a week ago.

“The BSP lowered volume offering for the TDF auction to P350 billion (from P390 billion). Based on actual bids received last week, the total offer volume was also reallocated between the 7-day and 14-day tenors at P190 billion (from P220 billion) and P160 billion (from P170 billion), respectively,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement on Wednesday.

Broken down, tenders for the seven-day papers reached P259.374 billion, beyond the P190 billion auctioned off by the central bank and the P190.262 billion in bids for the P220-billion offer seen the previous week.

Banks asked for yields ranging from 6% to 6.4%, a wider and lower band compared with the 6.27% to 6.45% seen a week earlier. This caused the average rate of the one-week deposits to decrease by 5.8 basis points (bps) to 6.2973% from 6.3553% previously.

Meanwhile, bids for the 14-day term deposits amounted to P144.785 billion, falling below the P160-billion offering and the P186.935 billion in tenders seen for the P170-billion offer on Jan. 11.

Accepted rates for the tenor were from 6.15% to 6.5088%, wider than the 6.25% to 6.459% margin seen a week ago. With this, the average rate for the two-week deposits fell by 2.47 bps to 6.3733% from 6.398% logged in the prior auction.

The central bank has not auctioned 28-day term deposits for more than two years to give way to its weekly offerings of securities with the same tenor.

The term deposits and the 28-day bills are used by the BSP to mop up excess liquidity in the financial system and to better guide market rates.

“The results of the TDF auction came as eligible counterparties reallocated their placements towards the shorter tenor as part of their efforts to manage liquidity in anticipation of some client requirements,” Mr. Dakila said.

“Moving forward, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” he added.

Term deposit yields were lower amid expectations of a dovish Fed after US consumer inflation eased to a 14-month low in December, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The US consumer price index (CPI) slipped by 0.1% last month, the first decline since May 2020 and coming from a 0.1% rise in November.

On an annual basis, the CPI increased 6.5%, easing from the 7.1% print seen in November 2022.

The report bolstered bets that the Fed will deliver smaller rate hikes as early as its first meeting for the year, which will be held from Jan. 31 to Feb. 1.

The US central bank increased borrowing costs by 425 bps last year.

Mr. Ricafort said the expected 25-bp rate hike from the Fed at their first meeting could be matched by the BSP next month.

BSP Governor Felipe M. Medalla last week said the central bank is likely to raise benchmark rates by 25 or 50 bps at its meeting on Feb. 16 as it still needs to anchor inflation expectations.    

The BSP hiked rates by 350 bps in 2022 in an effort to bring down elevated inflation. — Keisha B. Ta-asan