Demand surged for the central bank’s short-term securities on Friday, driving yields lower despite a larger volume offered to investors. The auction attracted bids totaling P138.162 billion, significantly exceeding the P90 billion available, a clear indication of strong market appetite.
This robust demand translated to a decrease in the weighted average interest rate for the one-month bills, falling to 4.6382% from 4.6981% the previous week. Accepted rates ranged from 4.58% to 4.67%, showcasing a broader range of investor participation and a softening in borrowing costs.
While the bid-to-cover ratio slightly decreased to 1.5351 times – reflecting the increased supply – it remained healthy, demonstrating continued investor confidence. The central bank fully awarded the offered amount, effectively absorbing excess funds from the financial system.
The central bank strategically utilizes these securities, alongside its term deposit facility, to manage liquidity and influence short-term market interest rates, aligning them with its broader monetary policy objectives. Currently, approximately half of all market operations are conducted through these short-term securities.
To date, these operations have successfully withdrawn P1.5 trillion in liquidity from the market. A substantial portion – 42.4% – has been absorbed through the sale of BSP securities, with the remainder channeled through various other mechanisms like reverse repurchase agreements and deposit facilities.
Beyond liquidity management, these auctions play a crucial role in enhancing price discovery for debt instruments, contributing to a more transparent and efficient financial market. This improved transparency supports the effective transmission of monetary policy throughout the economy.
The central bank initially began weekly auctions of these short-term securities in 2020, starting with the 28-day tenor and later adding the 56-day bill in 2023. However, a gradual shift away from reliance on these securities is underway.
The long-term goal is to stimulate greater activity within the broader money market, and recent observations indicate a positive trend with increased trading volumes. This strategic adjustment aims to foster a more dynamic and self-regulating financial ecosystem.
