TDF yields move sideways on robust demand

YIELDS on the Bangko Sentral ng Pilipinas’ (BSP) term deposits moved sideways on Wednesday as a recent bond maturity boosted market demand, with sentiment also improving amid hopes for a resolution to the Middle East conflict.

The seven-day term deposit facility (TDF) attracted P121.664 billion in tenders, more than double the P60-billion offer and above the P102.793 billion in bids for the same volume auctioned off last week.

This translated to a higher bid-to-cover ratio of 2.0277 times from the 1.7132 ratio recorded a week ago.

As a result, the BSP made a full P60-billion award of its offering as the TDF rate remained “broadly stable,” it said in a statement.

Accepted yields for the one-week papers narrowed to 4% to 4.2238% on Wednesday from the 4% to 4.2395% margin in the previous auction. This resulted in a weighted average accepted rate of 4.2082%, 0.04 basis point higher than the 4.2078% a week prior.

The average yield was marginally higher but still below the BSP’s policy rate of 4.25% amid strong appetite for the offering, which reflects ample liquidity in the financial system, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He said this was partly due to a P282-billion five-year bond maturity on Wednesday that freed up some cash, which players are likely to reinvest in instruments like the TDF for returns.

Demand was also supported by improved sentiment as global oil prices fell below $100 a barrel after US President Donald J. Trump agreed to hold fire for two weeks, provided Iran would reopen the Strait of Hormuz for oil trade.

Oil prices slid as a two-week Middle East ceasefire brought some relief to markets on hopes for a resumption of oil and gas flows through the Strait of Hormuz, Reuters reported.

The news capped weeks of market volatility and geopolitical upheaval after US and Israeli strikes on Iran at the end of February pushed tensions to the brink, with Tehran effectively choking off the strategic waterway that typically carries about 20% of the world’s energy supplies.

Mr. Trump on Tuesday agreed to the ceasefire less than two hours before his deadline for Iran to reopen the strait or face devastating attacks on its civilian infrastructure.

Market reaction was swift and dramatic, with US crude futures down around 15% to $96.31 a barrel, while Brent futures also slid 13% to $94.71 per barrel.

The six-week conflict had sent oil prices soaring, reignited inflation fears and thrown the global rates outlook into disarray, forcing governments and companies to scramble for cover against a sudden energy shock.

Mr. Trump’s social media announcement on the ceasefire marked an abrupt reversal from hours earlier, when he issued an extraordinary warning that “a whole civilization will die tonight” unless his demands were met.

Beyond the immediate relief, investors remain keen to see whether the ceasefire leads to a broader resolution before placing major bets.

Some analysts are also skeptical that the ceasefire will translate into lasting peace, warning of likely twists and turns ahead.

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 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. — Katherine K. Chan