Term deposit yield declines on strong demand, lower oil prices

THE CENTRAL BANK’S term deposits fetched a slightly lower average yield on Wednesday as the offer drew strong demand and with global oil prices easing.

The Bangko Sentral ng Pilipinas’ (BSP) seven-day term deposit facility (TDF) attracted P159.177 billion in tenders, more than double the P70-billion plan and above the P121.664 billion in bids for a P60-billion offer last week.

This translated to a bid-to-cover ratio of 2.274 times, higher than the 2.0277 ratio recorded a week ago.

With this, the BSP fully awarded its offering as the average yield eased.

Accepted yields for the one-week papers narrowed to the 4% to 4.215% range from the 4% to 4.2238% margin in the previous auction. This resulted in a weighted average accepted rate of 4.1964%, 1.18 basis points below the 4.2082% recorded the week prior.

“The seven-day BSP TDF average auction yield was again marginally lower… amid excess liquidity in the local financial system amid the matured P282 billion in five-year Treasury bonds a week ago, as manifested by the relatively larger total bids,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He added that lower global crude oil prices amid the two-week ceasefire between the United States and Iran also brought yields down.

Oil prices fell for a second day on Wednesday on expectations peace talks between the US and Iran may resume and eventually release supply from the key Middle East producing region trapped by the closure of the Strait of Hormuz, Reuters reported.

Brent crude futures fell 52 cents or 0.55% to $94.27 a barrel at 0054 GMT after falling 4.6% in the previous session. US West Texas Intermediate crude was down $1.04 or 1.1% to $90.24 after dropping 7.9% the session before.

Talks to end the war between the US and Israel and Iran could resume in Pakistan over the next two days, US President Donald J. Trump said on Tuesday, after the collapse of negotiations over the weekend prompted Washington to impose a blockade on Iranian ports. This has increased optimism talks could eventually settle the conflict and open up crude oil and fuel flows.

The war has shut the Strait of Hormuz, a key waterway for crude and refined product flows out of the Gulf to global buyers, particularly in Asia and Europe.

The market stands to lose some access to further supply after two US administration officials told Reuters on Tuesday the US will not renew a 30-day waiver of sanctions on Iranian oil at sea that expires this week, and quietly let a similar waiver on sanctions on Russian oil expire over the weekend.

The central bank uses the TDF and BSP bills to mop up excess liquidity in the financial system and better guide market rates towards the policy rate.

The BSP last auctioned off both the seven-day and 14-day deposits on Oct. 29. It has not offered 28-day term deposits for over five years to give way to its weekly offerings of securities with the same tenor.

In its latest Monetary Policy Report, the central bank said it limited its TDF offerings to a single tenor to rationalize its liquidity operations and focus on tenors that would boost monetary policy transmission. As of mid-February, the BSP’s market operations have absorbed P1.2 trillion in excess liquidity from the market, with 9% of this being siphoned off via the TDF. — Aaron Michael C. Sy with Reuters