New swap market in the Philippines goes live

This is a combo photo of the Bangko Sentral ng Pilipinas (BSP) and Bankers Association of the Philippines (BAP) logos. – A new swap market in the Philippines goes live Monday, November 18, 2024, providing a new benchmark yield curve that could be used in pricing short-term loans and bonds. The BSP and BAP launched the enhanced peso interest rate swap (IRS) market in October. INQUIRER FILES

The enhanced peso interest rate swap (IRS) market launched in October by the Bangko Sentral ng Pilipinas (BSP) and Bankers Association of the Philippines (BAP) is set to go live Monday, Nov. 18, providing a new benchmark yield curve that could be used in pricing short-term loans and bonds.

The BAP said 16 of their member banks will be market-makers that will quote two-way prices for short- and long-term swaps against the created local interest rate swap (IRS) overnight reference rate (ORR).

These banks include the BDO Unibank, Inc. (BDO), the Bank of the Philippine Islands (BPI), China Bank, EastWest Bank, Metrobank, Philippine National Bank (PNB), Security Bank, and the Rizal Commercial Banking Corporation (RCBC).

The Union Bank of the Philippines, Inc, Australia and New Zealand Banking Group, Citibank Philippines, Deutsche Bank, Hong Kong and Shanghai Banking Corporation (HSBC), ING Bank, JP Morgan Chase, and Standard Chartered Bank will also be among the current market-makers.

BDO, Maybank, Mizuho Bank, Mitsubishi UFJ Financial Group, and Sumitomo Mitsui Banking Corporation (SMBC) will likewise serve as regular market participants.

READ: New swap market launched to create reliable interest rate benchmark

Meanwhile, Bloomberg will serve as the trading platform for the enhanced peso IRS market.

“The enhanced peso IRS market aims to promote development of yield curves to further support the pricing requirements of short-term credit instruments, such as loans, in the market,” said Paul A. Favila, chairman of the BAP open market committee.

The ORR is based on the BSP’s variable overnight reverse repurchase rate, which is set daily and changes depending on the needs of the banks.

READ: BAP launches dollar-peso cross currency swap market

The IRS allows borrowers to sell bonds using the most attractive rates that can be offered to creditors at the time of the sale, then repay the principal amount and borrowing costs via a financing schedule they desire.

This usually involves the exchange of a fixed interest rate for a floating rate – which changes periodically based on market conditions – or vice versa.

BAP president Jose Teodoro K. Limcaoco said the launch of the enhanced Peso IRS market, as well as the creation of a repo market for government securities, are valuable steps towards growing the Philippines’ capital market.