Peso debt market roadmap out soon

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A roadmap aimed at accelerating the development of the local currency debt market will soon be unveiled by the Bangko Sentral ng Pilipinas (BSP).

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“[W]e have put together a definitive roadmap which was informed by technical assistance from international experts. We will put out the roadmap to engage industry, finalize shortly thereafter and implement in phases over the next 18 months,” central bank Governor Nestor Espenilla Jr. said during a forum staged by the Economic Journalists Association of the Philippines.

He noted that the supply of government securities was relatively fragmented at present and that the market was illiquid in certain parts, which is why reforms are needed.

“[The] government securities market in effect is the most important element because it sets the risk-free yield curve which is the foundation for pricing all other kinds of instruments,” Espenilla said

He said the BSP, Bureau of Treasury, Securities and Exchange Commission and the Department of Finance were jointly proposing three major operational priorities for the development of the local currency debt market.
One involves deepening the local bond market by adopting reforms in the government securities eligible dealers (GSED) system, increasing the supply of short-term securities, and developing an effective regulatory framework for derivatives and repurchase agreements.

Other priorities are the creation of reliable financial benchmarks and valuation of financial instruments; the establishment of integrated financial market infrastructure to promote price discovery and transparency; and orderly trading clearing and settlement of a full range of financial transactions.

Espenilla said the role of the Treasury, besides improving the management of GSEDs, was to lay the foundation for the repo market.

“Repo market is important for creating liquidity for government securities,” he said.
The SEC, meanwhile, will focus on market conduct.

For its part, the Bangko Sentral’s role is to make sure that individual players — mostly BSP-supervised financial institutions — have the capacity to manage risks to avoid getting into he situation of financial instability.

Espenilla said that after 18 months, the public should be seeing an active repo market with more regular issuances in the primary auctions.

“You want to see also a full yield curve relatively smooth and predictable. We want to see volume already in repo transactions actually happening,” he said.

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