Short-term funding costs in the Philippines continue to edge up as the Bangko Sentral ng Pilipinas faces softer appetite for its liquidity mop-up securities. The latest auction leaves the offer undersubscribed and extends to a sixth straight week the climb in the average yield on the central bank's 28-day bills.
Highlights
- Bids for BSP's 28-day bills fall to P17.644 billion, below the P20 billion offer and last week's P24.73 billion tender, pushing yields higher.
- The weighted average accepted yield rises for the sixth straight week to 5.6983%, with accepted yields ranging from 5.59% to 5.85%.
- BSP open market operations have withdrawn P975.4 billion from the system, with 14.8% absorbed through BSP securities and 45.6% via the overnight reverse repurchase facility.
Auction results point to firmer short-term rates
As reported by BusinessWorld Online, bids for the BSP's 28-day bills totaled P17.644 billion on Friday, below the P20 billion on offer and lower than the P24.73 billion tendered in the previous week's auction of the same volume.The lower demand pushed the bid-to-cover ratio down to 0.8822 from 1.2365 a week earlier. Despite the undersubscription, the central bank awards only P14.644 billion in securities to contain the increase in borrowing costs.
Accepted yields for the one-month bills range from 5.59% to 5.85%, wider and higher than the 5.1% to 5.74% band in the prior auction. The weighted average accepted yield climbs by 4.63 basis points to 5.6983% from 5.652%, marking the sixth straight week of increases.
Liquidity operations remain central to policy transmission
The BSP uses its securities and term deposit facility to absorb excess liquidity from the financial system and steer short-term market rates toward its policy rate. The bills also support price discovery in debt instruments and help strengthen monetary policy transmission.The central bank starts weekly auctions of short-term securities in 2020 with only a 28-day tenor, then adds a 56-day bill in 2023. It now limits offerings to a single tenor as it rationalizes liquidity operations and focuses on maturities seen as more effective in improving policy pass-through.
Based on the BSP's August 2026 Monetary Policy Report, its open market operations have withdrawn P975.4 billion from the financial system. Of that total, 14.8% is absorbed through BSP securities, while 45.6% is mopped up via the overnight reverse repurchase facility, 27.3% through the overnight deposit facility, and 12.3% from the term deposit facility.
The BSP says interest rates on its 28-day bills fully reflect the two 25-basis-point policy rate hikes it delivers in April and June.
Earlier, we looked at the BSP policy dilemma of fighting inflation while growth in the Philippines slowed.
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