MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) successfully launched yesterday its own debt securities as cash-rich banks swarmed the auction of 28-day bills, digging deeper into its toolbox to manage liquidity in the financial system and develop the local bond market.
The 28-day BSP bills fetched 1.8355 percent during the maiden auction as bids amounted to P43.36 billion or more than double the issue size of P20 billion.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the yield of the 28-day BSP securities was slightly lower than the 1.8409 percent rate for the 28-day term deposits auctioned last Wednesday.
Ricafort said the term deposit facility (TDF) auction last Wednesday may have sapped some of the demand that would have otherwise went to the BSP securities.
“Only banks are allowed to buy the BSP securities, also partly explaining the lower bids until the Treasury bill and Treasury bond auctions where more types of investors are allowed,” Ricafort said.
Last Wednesday, the BSP’s auction committee awarded P350 billion worth of seven-, 14-, and 28-day term deposits, with bids reaching P527.98 billion as all tenors were oversubscribed.
Ricafort said the central bank is likely to phase out the 28-day term deposits as the 28-day term deposits is set to become the main tool of the central bank for managing liquidity.
BSP Governor Benjamin Diokno earlier said the issuance of BSP securities under the interest rate corridor (IRC) framework would provide an additional instrument for managing liquidity in the system.
According to the BSP, the proposed debt instruments have buy-back or early redemption feature wherein the central bank has the right to buy back or redeem the BSP securities prior to maturity dates.
Likewise, the BSP bills or bonds will be available for trading in the secondary market and shall be done on the trading platform operated by the Philippine Dealing and Exchange Corp. (PDEx).
The sale of the debt instruments will better guide bond yields that are starting to rise and improve loan pricing.
The central bank said the issuance od its securities is part of the operational enhancements to the IRC framework and does not represent in the BSP’s policy stance.
The BSP adopted the IRC in June 2016 paving the way for the launch of the term deposit facility (TDF) auction as part of efforts to guide short-term market rates towards the central bank policy interest rate.