BSP Launches New Swap Market to Boost Bond Trading and Investments

The Bangko Sentral ng Pilipinas (BSP) introduced a new interest rate swap market on Monday, November 18. This initiative aims to improve trading and liquidity in the local bond market while encouraging savings and investments. It also supports the efficient transmission of monetary policy.

The Bankers Association of the Philippines (BAP) launched the enhanced Philippine Peso Interest Rate Swap (PESO IRS) market. This new market uses the Philippine Overnight Reference Rate (ORR) as a basis for short-term swaps.

For the first time, 16 banks have committed to being market makers for ORR-based swaps. They will provide pricing for swap contracts with maturities ranging from one month to 10 years, offering businesses and investors a way to manage risks or take positions.

“We are excited for PESO IRS to go live to help boost transactions, create a benchmark yield curve, and deepen our capital markets,” BSP Governor Eli M. Remolona said. “A benchmark curve will help banks and other lenders price loans at various maturities. This whole effort is just one of many steps the National Government, the BSP, and Philippine and foreign banks are working on very closely together to achieve these objectives. Foremost among these is to provide the liquidity investors need to invest in our fast-growing economy.”

The National Government, BSP, and other partners are also working on additional measures:

1. The Bureau of the Treasury simplified tax payments for residents of 43 countries with tax treaties. These investors now pay the treaty rate directly without needing a refund process.
2. The Treasury is concentrating bond issuances on selected maturities to create more liquid benchmarks.
3. The BSP plans to adopt global repo agreements, allowing banks to access government bonds for repo transactions. This will improve the repo market and support capital market growth.
4. The Department of Finance is pushing for tax reforms to make the bond market more competitive.

Officials are also engaging with global stakeholders to make Philippine assets more accessible. The BSP believes these efforts will improve monetary policy transmission, making it easier for businesses and consumers to access loans and investments. (ASC)