THE GOVERNMENT is firming up plans to establish a repurchase agreement (repo) market to further boost liquidity.
“The domestic repo facility was being discussed with regulatory agencies and so far we are making progress,” National Treasurer Roberto B. Tan said in a text message.
A repo allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and at an agreed price.
Repos provide lenders with low risk investments and are usually used to raise short-term capital.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said regulators wanted to see the facility to “take off soon.”
In an e-mail, Tetangco said “a well-functioning repo market for government securities is a high priority capital market reform that BSP strongly supports.”
“It would enhance the efficiency of monetary policy and promote price discovery,” Tetangco added.
“We are working closely with major market players, together with the Bureau of the Treasury and the Securities and Exchange Commission, to set up a conducive regulatory and governance framework so the repo market can work properly,” he said.
Tan did not specify a timetable, saying only the actual operation “would still take quite a while.”
Tan earlier said one way to enhance the credibility of the yield curve while increasing the size of existing liquid securities was the proposed introduction of a standardized documentation for a repo program, which will be sponsored by the Treasury.
Tan had said the domestic repo market would provide two-way quotes to securities falling in the benchmark tenors.
The government last year launched a domestic debt swap to increase the volume of liquid securities.
In September, the Treasury swapped P237 billion in illiquid state debt papers with new benchmark bonds due 2025 and 2040.
Given the market’s “strong response,” the government priced both the 2025 bonds and 2040 bonds at their minimum coupon rates of 3.625 percent and 4.625 percent, respectively.
The domestic liability management exercise attracted P388 billion in tender offers—P134 billion for benchmark bonds due 2025, and P254 billion for benchmark bonds due 2040.