BSP bill yields rise for fourth straight week amid strong demand

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BSP bill yields rise amid demand

Highlights

Bids for the BSP's 28-day bills reached P22.635 billion, oversubscribing the P20 billion on offer despite a drop in bid-to-cover ratio to 1.1318.
The weighted average accepted yield on BSP bills rose for the fourth consecutive week to 5.5665%, up 19.27 basis points from 5.3738% previously.
BSP's open market operations have absorbed P975.4 billion in liquidity, with 14.8% through securities and rates reflecting recent 25-basis-point hikes in April and June.

Auction results and liquidity operations

As reported by BusinessWorld Online, bids for the Bangko Sentral ng Pilipinas' 28-day bills reached P22.635 billion at Friday's auction, above the P20 billion on offer but below the P29.265 billion tendered in the previous week for the same volume.

The bid-to-cover ratio stands at 1.1318 times, down from 1.4633 times a week earlier. Even so, the central bank awards the full offering after the securities remain oversubscribed.

Accepted rates for the one-month papers range from 5.125% to 5.7%, wider and higher than the 5.05% to 5.548% band recorded a week earlier. The weighted average accepted rate rises by 19.27 basis points week on week to 5.5665% from 5.3738%, marking the fourth straight weekly increase in the average yield.

Implications for monetary policy transmission

The BSP uses its securities and term deposit facility to mop up excess liquidity in the financial system and help guide short-term market yields toward its policy rate. The bills also support price discovery for debt instruments and strengthen monetary policy transmission.

The central bank begins 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 BSP securities offerings to a single tenor to rationalize liquidity operations and focus on maturities that would boost policy pass-through.

Based on the BSP's August 2026 Monetary Policy Report, its open market operations have siphoned off P975.4 billion in liquidity from the financial system. Of that amount, 14.8% is absorbed through BSP securities, while 45.6% is mopped up through the overnight reverse repurchase facility, 27.3% through the overnight deposit facility, and 12.3% through 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.

Our earlier coverage of the Philippines’ planned sovereign bond reforms examined how a new pricing convention for peso government bonds and the goal of inclusion in a major emerging-market bond index could improve liquidity and price discovery by attracting more foreign participation. It also noted that lower yields and deeper capital-market benefits are not automatic, since outcomes still hinge on global rates, fiscal credibility, and broader reforms to build a stronger domestic investor base and more functional corporate debt and equity markets.

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