Repo market hits P119 billion as BSP reforms gain ground

MANILA, Philippines — The country’s repurchase agreement market has expanded to P119 billion as of July, reflecting progress in the Bangko Sentral ng Pilipinas (BSP)’s efforts to deepen fixed-income trading and strengthen the transmission of monetary policy.

BSP Governor Eli Remolona Jr. said activity in the repo market has increased by 55 percent since end-2024 following the adoption of the Global Master Repurchase Agreement (GMRA), the global standard contract for such transactions.

“To me, that is a big advance in the repo,” Remolona said.

A repo transaction allows a financial institution to raise short-term funding by selling securities to another party and agreeing to repurchase them at a later date. A more active repo market helps financial institutions manage their liquidity and supports trading in government securities.

Remolona said the GMRA serves as an umbrella agreement that allows market participants to conduct repo transactions under a common contractual framework.

The growth of the repo market forms part of broader efforts to improve the country’s fixed-income markets, which Remolona previously described as “makeshift markets” that weakened the transmission of monetary policy.

The BSP has also seen increased activity in the peso interest rate swap market, with outstanding contracts reaching about P114 billion since the benchmark was introduced in November 2024.

An interest rate swap allows counterparties to exchange interest payment obligations, typically involving fixed and floating rates. These transactions can be used to manage interest rate risks and help establish a market-based yield curve.

Remolona said the contracts are now traded on a platform with an appropriate matching mechanism, supporting the BSP’s plan to eventually use the interest rate swap (IRS) curve as the main pricing benchmark for fixed-income instruments.

“Eventually, and we have been talking to Bloomberg about this, the IRS curve will replace the BVAL curve,” he said.

The market currently relies on the Bloomberg Valuation Service or BVAL curve, which estimates yields using government securities with different maturities and observed market rates.

Another potential boost to the local debt market is the planned inclusion of peso-denominated government bonds in the JPMorgan Emerging Markets Bond Index.

Philippine peso bonds are expected to account for about 1.78 percent of the index, which Remolona said is worth around $50 billion.

JPMorgan has selected nine government securities for inclusion in the benchmark, with the eligible bonds valued at about P3 trillion.

“This is a good thing because it’s the start of getting foreign investors involved in our markets,” Remolona said.

He said investors may initially enter the Philippine market as passive funds tracking the index before eventually becoming active participants, similar to the experience in other countries such as India.

“You need a diversity of investors and a diversity of views in order for trade to take place,” he said. “We have high hopes for this inclusion. We think it could transform our bond market.”

Despite the improvements in government securities and derivatives trading, Remolona said the country still needs to develop a deeper corporate bond market to reduce the economy’s reliance on bank financing.

The Philippine corporate bond market is equivalent to only about six percent of gross domestic product, significantly lower than Thailand’s 22 percent.

The BSP is working with the World Bank and the International Finance Corp., with the potential participation of Moody’s Ratings and S&P Global Ratings, to strengthen the country’s credit-rating process.