THE IMPROVED PESO Interest Rate Swap The market will open on Monday (Nov 18), a move by the Bangko Sentral ng Pilipinas (BSP) This will be an “important step towards stimulating trading and liquidity in the domestic bond market.”
The Bankers Association of the Philippines (BAP) said in a statement that it is launching the peso interest rate swap (IRS) market following the release of the updated International Swaps and Derivatives Association (ISDA) on November 15.
The Philippine Overnight Reference Rate (ORR) was included in the rates published by the ISDA.
“The enhanced peso IRS market aims to promote the development of yield curves to further support the pricing requirements of short-term credit instruments, such as loans, in the market,” Paul Raymond A. Favila, chairman of the BAP Open Market Committee, said in a statement declaration.
The BAP had developed the Philippine ORR, which is based on the BSP’s variable overnight repurchase rate.
The BSP said in a statement on Sunday that the IRS market will deepen local capital markets, which would increase savings and investment and strengthen monetary policy transmission.
“We are excited that PESO IRS is going live to stimulate transactions, create a benchmark yield curve and deepen our capital markets,” said BSP Governor Eli M. Remolona, Jr.
“A benchmark curve will help banks and other lenders price loans with different maturities. This whole eFFort is just one of many steps on which the national government, the BSP, and Philippine and foreign banks are working very closely to achieve these goals. Chief among these is providing the liquidity investors need to invest in our rapidly growing economy.”
Sixteen BAP member banks will serve as market makers who will quote two-way prices for the short- and long-term swaps against the Philippine ORR.
These are BDO Unibank, Inc.; Bank of the Philippine Islands; China Banking Corp.; EastWest Bank Corp.; Metropolitan Bank & Trust Co.; Philippine National Bank; Security Bank Corp.; Rizal Commercial Banking Corp.; Union Bank of the Philippines, Inc.; Australia and New Zealand banking group; Citi; Deutsche Bank; HSBC; ING Bank; JPMorgan Chase; and Standard Chartered Bank.
“(The banks) will ensure that there are prices for swaps with different maturities, from one month to ten years, providing a new way to hedge or take positions,” the BSP said.
Five banks will also act as regular participants: BDO Private Bank, Maybank, Mizuho, MUFG and SMBC.
Bloomberg will serve as the trading platform for the swap market, while the BSP will be the issuer of the daily floating reverse repo rate benchmark.
“Now that the enhanced PESO IRS market has gone live, it is time to work together and ensure that the reforms we have been pursuing achieve their goals,” said BAP President Jose Teosaid Doro K. Limcaoco.
“The launch of the enhanced PESO IRS market, together with the creation of a government bond repo market, are valuable steps towards the growth of our Philippine capital market,” he added.
Michael L. Ricafort, Chief Economist of Rizal Commercial Banking Corp. (RCBC), said in a Viber message that the Peso IRS market will provide the investing public with more hedging products and solutions, which would help develop the country’s markets.
“This would enable companies, institutions and individuals to better manage and hedge their interest rate risks to better adapt to global and market developments, at least limit market risks, or even become lucrative/profitable with the right market vision,” he says. said.
“The investing public could take positions in a declining or even rising U.S. and local interest rate environment based on economic and monetary policy cycles,” he added.
Meanwhile, the BSP said it is working to adopt Gobal Master Repurchase Agreement (GMRA) contracts, “which will allow the country to effectively deliver government bonds to banks when they enter into repos as part of monetary policy operations.”
“This is expected to boost the government bond repo market, which is currently mainly interbank, as banks gain access to BSP government bonds, which they can also repo for additional profits. As the BSP shift introduces some banks to GMRA, they may also engage in other repo transactions,” the report said.
An expanded repo market will also provide a “strong alternative benchmark.” the PESO IRS. — Aaron Michael C. Sy