The average yield on the Bangko Sentral ng Pilipinas' (BSP) short-term securities jumped on Friday even as demand surged, following the central bank's third consecutive rate hike.

Bids for the 28-day BSP bills reached P63.52 billion, double the P30-billion offering and up sharply from the P32.557 billion in tenders for the same volume auctioned on Aug. 24. The strong showing lifted the bid-to-cover ratio to 2.1173 times from 1.0852 previously, and the BSP awarded its entire offering. The combination of heavier bids and higher accepted rates indicates banks and other institutional investors were willing to lock in more of their funds with the central bank at elevated yields as the policy rate climbed.

"At the auction held on Aug. 28, 2026, the weighted average interest rate (WAIR) for the 28-day BSPB increased by 15.12 basis points (bps) week on week to 4.922%, following the policy rate increase announced (on Thursday)," the central bank said in a statement.

Accepted rates ranged from 4.76% to 5.009%, a wider and higher band than the previous 4.75%-4.85% margin. The one-month securities' WAIR rose for an 11th straight week to 4.922% from 4.7708% in the prior auction, tracking the steady tightening cycle.

On Thursday, the BSP's policy-setting Monetary Board raised benchmark interest rates by 25 bps for a third straight meeting, seeking to preemptively control inflation risks and expectations amid pressures from the looming severe El Niño, wage hikes, and volatile global oil prices.

The move brought the target reverse repurchase rate to 5%, the highest in over a year — since the 5.25% seen in June 2025 — and matched the benchmark rate set in August 2025. Yields on the overnight deposit and lending facilities were also raised by 25 bps each, to 4.5% and 5.5%, respectively. Cumulative hikes since April now total 75 bps.

BSP Governor Eli M. Remolona, Jr. left the door open to further tightening, saying policymakers will adjust their stance as necessary to bring inflation closer to the 3% target. That guidance suggests short-term yields, including those on BSP bills, will continue to take their cue from the policy rate in coming auctions.

The consumer price index averaged 5% as of July. The BSP expects inflation to average 6.1% this year, with the print likely to peak in the fourth quarter — a backdrop that has kept the central bank in tightening mode this year.

The central bank uses BSP securities and its term deposit facility to mop up excess liquidity in the financial system and to help guide short-term market yields toward its policy rate. The BSP bills also contribute to improved price discovery for debt instruments while supporting monetary policy transmission, making their weekly auction results a closely watched reference for pricing short-term peso debt in the broader market.

The BSP began auctioning short-term securities weekly in 2020, initially offering only a 28-day tenor and adding a 56-day bill in 2023. It has since limited its securities offerings to a single tenor to rationalize liquidity operations and focus on tenors that boost policy transmission.

According to its June 2026 Monetary Policy Report, the central bank's open market operations have siphoned off P1.3 trillion in liquidity from the financial system. Of this, 19.2% was absorbed through BSP securities, 52.3% through the overnight reverse repurchase facility, 21.5% via the overnight deposit facility, and 6.9% from the term deposit facility.

— Katherine K. Chan