BSP short-term bill yields rise as rate hike tightens Philippine liquidity conditions

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BSP bill yields rise

Highlights

Yields on 28-day BSP bills rise for a third straight week, with accepted yields ranging from 5.05% to 5.548% and a weighted average of 5.3738%, up 28.59 basis points from last auction.
The Monetary Board's 50-basis-point hike lifts the target reverse repurchase rate to 5.5%, its highest in nearly two years, citing inflation and liquidity concerns amid external risks.
Open market operations have absorbed P975.4 billion in liquidity as of August 2026, with 14.8% via BSP securities and 45.6% through the overnight reverse repurchase facility.

Auction results reflect tighter policy stance

As reported by BusinessWorld Online, yields on the Bangko Sentral ng Pilipinas' short-term securities rise for a third straight week on Friday after the Monetary Board delivers a 50-basis-point rate hike and signals room for further tightening.

The 28-day BSP bills receive P29.265 billion in bids, above the P20 billion placed on offer, although below the P31.219 billion in tenders logged in the previous week for the same volume. The bid-to-cover ratio eases to 1.4633 from 1.561, but the central bank still awards the full P20 billion.

Accepted yields for the one-month bills range from 5.05% to 5.548%, wider and higher than the prior week's 5% to 5.148% band. The weighted average accepted yield climbs by 28.59 basis points to 5.3738% from 5.0879% in the previous auction.

Inflation risks and liquidity absorption remain central

BSP Governor Eli M. Remolona, Jr. says a strong response is needed because inflation may accelerate further as the Middle East war continues to push up oil prices, while strong El Niño conditions are also likely to disrupt food supply. The policy move brings the target reverse repurchase rate to 5.5%, the highest in nearly two years and marks the fourth consecutive meeting at which the central bank tightens monetary policy, for cumulative hikes of 125 basis points since April.

The Monetary Board is set to hold its last meeting of the year on Dec. 17. Only two of 22 analysts polled by BusinessWorld expect the 50-basis-point increase, while the rest project a quarter-point move.

The central bank uses BSP securities and its term deposit facility to absorb excess liquidity and guide short-term market yields toward the policy rate, while also supporting price discovery and policy transmission in debt markets. The BSP begins weekly auctions of short-term securities in 2020, adds the 56-day tenor in 2023, and now limits offerings to a single tenor to rationalize liquidity operations and focus on maturities that strengthen monetary policy transmission.

Based on the BSP's August 2026 Monetary Policy Report, open market operations have siphoned off P975.4 billion in liquidity from the financial system. Of that total, 14.8% is absorbed through BSP securities, 45.6% through the overnight reverse repurchase facility, 27.3% via the overnight deposit facility, and 12.3% from the term deposit facility. The BSP also says interest rates on its 28-day bills fully reflect the two 25-basis-point policy rate hikes delivered in April and June.

In our earlier coverage of the Philippines’ planned sovereign bond reforms and index-inclusion push, we outlined how a new pricing convention for peso government bonds and entry into a major emerging-market bond index could improve comparability, liquidity, and price discovery. We also noted that any durable benefit for funding conditions and investment depends on broader fundamentals—global rates, fiscal credibility, and deeper local capital markets—rather than modernization steps alone.

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