Central bank has no plans to offer long-term bonds

The Bangko Sentral ng Pilipinas (BSP) has no plans of issuing long-term securities, its top official said.

“We have no plans for that. Now, it’s just a liquidity issue. Longer-term bonds are for financing of say, government operations, but what we are doing now is purely a liquidity effort,” BSP Governor Eli M. Remolona, Jr. said in a press chat on Wednesday.

The BSP absorbs excess cash from the financial system through its monetary instruments, which include its overnight reverse repurchase (ON RRP) facility, short-term liquidity management tools, and standing liquidity facilities.

Data from the central bank showed that around 50% of its market operations are done through short-term BSP bills.

As of end-September, the central bank siphoned off PHP 1.77 trillion in excess money supply through its monetary operations. Of this, PHP 804 billion was mopped up by BSP bills.

“Maturities are shorter in general than what the National Government (NG) does when it issues its own government securities. Since 2019, we’ve been able to use this facility, and it has helped us very much in terms of managing the liquidity of the whole system,” Mr. Remolona said.

BSP Assistant Governor Zeno R. Abenoja said the BSP bills were created in close coordination with the Bureau of the Treasury (BTr).

“When we crafted the BSP bills, the tenor was carefully calibrated so it will not overlap with the Treasury bills (T-bills). The T-bills run from three months onwards to a year, so the BSP has been operating below that horizon,” he said.

The BSP can technically issue any tenor but ensures its securities do not crowd out different instruments currently in the market, Mr. Abenoja added.

Short-term instruments also offer more stability and predictability.

“If you rely on shorter maturities, then we have to do more issuances every day and every one and two weeks. To provide some stability in the operation, sometimes there’s benefit to that. That’s one reason why we are focusing on these particular BSP bills,” he said.

These are also considered “high-quality liquid assets” and grants more flexibility for banks versus term deposit facilities (TDFs), which are not tradable, he added.

Mr. Abenoja said there are currently more than 80 participants using BSP facilities, composed of banks, nonbanks and trust entities.

‘REFINEMENTS’

The central bank is also continuing to look for ways to make its facilities more “market friendly” and broaden access to help improve liquidity absorption.

“We continue to refine it in response to changes in the operating environment, in response to the demand or the requirements of the banking system,” Mr. Abenoja said.

“It can have an important part moving forward in the push to develop the overall capital financial markets of the country,” he added.

Mr. Remolona said there is “a lot of liquidity” along the yield curve, which the BSP is currently working to manage.

“We want to improve liquidity for the whole yield curve, not just our part of the yield curve, but also the Treasury’s part of the yield curve. There’s many small issues with regard to that, but it’s one of our strategic objectives to have a yield curve that is liquid and reliable,” Mr. Remolona said.

“What we’re doing with our BSP bills is to manage liquidity for the system as a whole. Not necessarily to manage liquidity of a particular market,” he added.

So far, the BSP has employed various refinements to its securities facilities to improve liquidity management, such as the introduction of multiple tenors; additional guidance from month-ahead indicative offer volumes; and relaxation of anti-cornering rule.

In terms of marketability, the central bank also allowed the minimal share of nonresident funds in the BSP bills’ secondary market and expanded access to trust entities through unit investment trust funds (UITFs) in the secondary and primary market.

The BSP is looking at broadening the participants of its facilities.

“We had already initial steps, the UITFs of trust funds are already included in our eligible counterparties. We may consider, see which part of the industry could also join in this particular facility,” Mr. Abenoja said.

“Nonresident funds have been there. Maybe it could be something that could be also considered in the future. So that’s one part, broadening the participants,” he added.

Mr. Abenoja said that they are consulting banks to consider other refinements or improvements to any instruments. — Luisa Maria Jacinta C. Jocson