BSP sets ‘game plan’ to accelerate peso debt market dev’t

The government aims to accelerate peso debt market development in the next 18 months under a roadmap introduced last Friday, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. said.

“We have put together a definitive roadmap which was formed by technical assistance from international experts. We’ll put out the roadmap to engage industry, finalize shortly thereafter, and implement in phases over the next 18 months after its launch today. That’s a very definite game plan,” Espenilla told an economic forum hosted by the Economic Journalists Association of the Philippines.

The said “game plan” was aimed at accelerating the development of the local currency debt market under the supervision of the BSP, the Department of Finance, the Bureau of the Treasury and the Securities and Exchange Commission, Espenilla said.

Specifically, the roadmap will have three major operational priorities, the first of which was to deepen the local bond market by adopting reforms in the government securities eligible dealer (GSED) system, increase supply of short-term securities, and develop an effective regulatory framework on derivatives and repo markets, the BSP chief said.

Also, Espenilla said it will create a reliable financial benchmark as well as valuation of financial instruments.

Finally, the roadmap will establish an integrated financial market infrastructure that Espenilla said “will promote price discovery, transparency and orderly trading clearing and settlement of a full range of financial transactions.”

Espenilla noted that at present, the supply of government securities is “relatively fragmented and the market is illiquid in certain parts.”

By 2019, “we should be seeing an active repo market, that’s our ambition,” Espenilla said.

A repo, short for repurchase agreement, allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and an agreed price.

Repos are said to provide lenders low risk and are usually used to raise short-term capital.

The roadmap will also pave the way to a “full yield curve relatively smooth and predictable,” Espenilla said.

“We want to see volume already in repo transactions actually happening. As these things gain traction, you will see more issuances of corporate and infrastructure [bonds],” according to Espenilla.