BSP bills fetch lower yields on strong demand

THE ONE-MONTH securities offered by the Bangko Sentral ng Pilipinas (BSP) fetched a lower average rate on Monday amid strong demand despite the larger offer volume.

The 28-day BSP bills attracted bids amounting to P111 billion on Monday, higher than the P100 billion placed on the auction block and also well above the P49.635 billion in tenders attracted for the tenor for a P35-billion offer on Oct. 24. The BSP made a full P100-billion award.

The central bank did not offer two-month bills this week for the first time since June 2023, which was when it began selling the tenor at its weekly auctions of short-term securities.

At the Oct. 24 auction, the total offer volume including the 56-day papers was at P85 billion, which drew P125.798 billion in bids.

On Monday, accepted rates for the one-month securities were from 4.945% to 5.1%, narrower than the 4.9% to 5.16% margin seen previously. This caused the weighted average accepted rate of the 28-day bills to decline by 4.7 basis points to 5.0714% from 5.1184%.

The central bank uses the BSP securities and its term deposit facility to mop up excess liquidity in the financial system and to better guide short-term market rates towards its policy rate.

The BSP bills also contribute to improved price discovery for debt instruments while supporting monetary policy transmission, the regulator has said.

The central bank started auctioning off short-term securities weekly in 2020, initially offering only a 28-day tenor and adding the 56-day bill in 2023.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the total volume of the 28-day papers offered on Monday was more than doubled from the previous week to make up for the non-offering of the 56-day tenor.

“Since there is a higher yield over the key BSP overnight rate of 4.75%, more pesos would be invested elsewhere and some of the funds freed up would find their way in other local fixed income or money market instruments and also through more loans by banks,” he said.

In August, BSP Governor Eli M. Remolona, Jr. said they are gradually shifting away from the issuance of short-term papers to manage liquidity as they want to boost activity in the money market.

Data from the central bank showed that around 50% of its market operations are done through its short-term securities. — Katherine K. Chan