Yields on term deposits decline ahead of Fed’s policy decision

YIELDS on the central bank’s term deposit facility slipped on Wednesday, with the market expecting the US Federal Reserve to announce the details of the reduction of its asset purchases at the close of their policy review.

Total bids for the term deposit facility (TDF) of the Bangko Sentral ng Pilipinas (BSP) reached P641.782 billion, well above the P500-billion offer and the P548.928 billion in tenders recorded a week ago.

Demand for the seven-day deposits stood at P247.573 billion, going beyond the P170-billion auctioned off by the BSP as well as the P176.65 billion seen in the previous week’s offering.

Banks asked for yields ranging from 1.7% to 1.7716%, slimmer than the 1.7% to 2% band in the prior auction. This caused the average rate of the one-week term deposits to decrease by 0.91 basis point (bp) to 1.743% from 1.7521% previously.

Meanwhile, the 14-day term deposits fetched bids amounting to P394.209 billion, higher than the P330-billion offer and also beating the P372.278 billion in demand seen a week earlier.

Accepted rates for the tenor ranged from 1.75% to 1.7875%, narrower than the 1.73% to 1.8% margin logged the previous Wednesday. With this, the average rate of the two-week papers inched down by 0.27 bp to 1.7696% from the 1.7723% quoted in the previous week’s auction.

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

TDF yields were down prior to the outcome of the policy review of the Federal Open Market Committee from Tuesday to Wednesday, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The details of the tapering of the Fed’s asset purchases could be announced, and the market has already priced in this possibility, Mr. Ricafort added.

Reuters last month reported that Fed Chairman Jerome Powell said it was “time to taper,” but he believed the central bank should keep rates unchanged as the labor market remains weak.

Mr. Ricafort added that the market is also monitoring the continued decrease in local infections, which could lead to the further easing of mobility restrictions.

Curfew hours in the National Capital Region will be removed starting Thursday, Metropolitan Manila Development Authority Chairman Benjamin “Benhur” D. Abalos, Jr. announced on Wednesday. The area is under Alert Level 3 until Nov. 14.

Active cases rose by 1,591 to 38,014 on Wednesday, based on data from the Department of Health. — Luz Wendy T. Noble with Reuters