The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has amended the rules that govern the valuation of bank-held government securities (GS) to reflect its market value.
“The enhancement of the valuation guidelines for GS is essential to developing the country’s capital markets. In turn, deepening of the domestic capital market bolsters financial stability which is a key objective of the Bangko Sentral ng Pilipinas,” the MB said.
Under the new guidelines, bank-held GS shall now be valued based on actual transacted or “done” rates in the second market.
The central bank said that the new guideline will be applied regardless of the whether the GS held by banks are classified as benchmark, or nonbenchmark securities.
“The changes are meant to better reflect the market valuation for said instruments by promoting price consistency and enhancing price discovery,” it stated.
Furthermore, the BSP explained that the previous valuation guideline made the distinction between benchmark and nonbenchmark securities. It said that the benchmark securities used actual rates in the secondary markets, while nonbenchmark securities were valued on the books of the banks by interpolating between two adjacent benchmark bonds.
The central bank noted that there are currently 12 benchmark GS tenors in the country: the one-month, three-month, six-month, one-year, two-year, three-year, four-year, five-year, seven-year, 10-year, 20-year and 25-year tenor buckets. Securities whose remaining tenors fall within these tenor buckets are considered benchmark bonds, while those that cannot be slotted in them are nonbenchmark securities, it added.
Meanwhile, in the absence of “done” rates, the GS for a particular tenor bucket would be valued using a simple average of the bid rates for securities of that tenor bucket.
The BSP continued that only in the absence of “done” and bid rates will the yields of GS be “interpolated” from benchmark rates.