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Banks prefer Bangko Sentral ng Pilipinas (BSP) securities with short-term maturities of up to two months, according to their most senior official.
BSP Governor Benjamin E. Diokno said that, according to the results of market survey exercises conducted by the BSP, banks have shown “a strong market preference for terms within rates of up to two months” .
Part of the proposed terms for BSP securities, both bills and bonds, was for a term of one year, which is the term that the BSP and the Treasury have previously agreed upon as a commitment.
On September 18, the central bank issued its first 1-month or 28-day BSP letters after it restored its authority to sell securities last year with the Republic Law No. 11211 or the amended BSP Letter.
The auction of the BSP term deposit facility (TDF), offered in terms of 7, 14 and 28 days, will continue to complement the securities facility.
Meanwhile, the 28-day BSP invoices were priced at the 28-day TDF rate. Generally, central bank securities are offered with the shorter segment of the yield curve, while bonds have longer maturities. It is also important that the BSP securities do not overlap with the government securities issued by BTr. The BTr offers securities maturities of 91 days, 182 days and 364 days.
Diokno said the results of the initial auction on September 18 were consistent with market expectations of strong demand ahead of the tender auction, as the market remains liquid.
The BSP has no intention of canceling the TDF deadlines, Diokno added. “The issuance of BSP securities does not imply that the TDF of the BSP will be eliminated. The TDF will remain in the BSP toolkit and will be used as a fine-tuning instrument alongside the RRP (reverse buyback) facility that can be used to deal with short-term fluctuations in system liquidity, ”he said.
“Currently, the BSP offers the 28-day TDF and 28-day BSP values side by side to facilitate liquidity management operations and to accommodate excess liquidity of eligible participating entities that are not yet able to access the service of BSP values while still meeting the requirements. for participation ”, added Diokno.
The central bank will continue to issue 28-day BSP bills as the market prefers shorter terms. “The size of the offer will be relatively small in the initial phase, but it will be adjusted gradually according to the market response and the prevailing liquidity conditions,” he also said.
On Friday, the second week of the 28-day BSP Bills auction, bids continue to outnumber the P30 billion bid, which was higher than last week’s first issue of P20 billion. Offers totaled P69 billion with an accepted weighted average return of 1.8423 percent, down from 1.8355 percent on Sept. 18.
BSP deputy governor Francisco G. Dakila Jr. said that the tenders were 2.3 times the volume of the offer and the yield rose 0.68 basis points.
Dakila said the auction “shows strong market interest” in BSP’s securities “amid ample liquidity in the financial system.” He said accepted yields “remained comparatively close to the 28-day TDF at Wednesday’s auction.”
“The BSP will continue to gradually adjust the volume in the issuance of its securities in accordance with general monetary operations and liquidity assessments,” said Dakila.
Diokno, during his regular “GBED Talks” with the press last Thursday, said that issuing their own securities gives them more flexibility in managing liquidity as they shift to more market-based monetary operations.
“The issuance of bills and bonds is an additional tool that will further improve the implementation of monetary policy by the BSP. This also aligns the conduct of the monetary operations of the BSP with the practice of international central banking, ”said Diokno.
Securities with the other BSP instruments will “bypass” the policy rate and the rest of the yield curve. “The issuance of BSP securities will help guide market interest rates along the short end of the yield curve. This strengthens the transmission of the monetary policy stance from the BSP to the rest of the economy, ”said the head of the BSP.
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