By Lee C. Chipongian
After almost three decades of absence in the bonds market, the Bangko Sentral ng Pilipinas (BSP) will return and test the market with its one-year bond maturity by end-August or September this year.
BSP Governor Benjamin E. Diokno said the Monetary Board will discuss and review the bond issuance guidelines once it was forwarded to the Monetary Board which he expects soon.
Initially, the proposal was for a term of one year, which is a compromised tenor that both the BSP and the Bureau of the Treasury (BTr) could agree on.
“We can do this in the third quarter,” said Diokno.
The market is in favor of longer maturity or two-year bonds based on the BSP’s consultation with banks.
The BSP though prefers one-year bonds because the longer the bond’s maturity, the lesser liquidity the BSP will siphon off the market. Central bank sells bonds to reduce money supply and the length of maturity will determine how effective liquidity management will be.
Sectors in the central bank are now preparing links with the secondary market to make sure there will be a smooth buying and selling transaction for the BSP bonds when they test the market in two months.
Proposals for the BSP bonds include the issuance of a combination of certificate of indebtedness or the bonds, and term deposit facility (TDF) for a more effective monetary operations after it has restored its authority to sell securities.
BSP bonds, which are negotiable and marketable, are intended to mop up liquidity in bulk while the overnight bills are for fine-tuning market rates. In between the overnight and a longer-dated tenor, is the TDF which is for bank deposits and offered at 7, 14 and 28-day terms.
The proposed framework assures there will be no crowding out or overlapping in terms of tenors between the BSP and the BTr. Unlike the government which sells bonds for financing, the BSP bonds will be used for monetary management.
The amended New Central Bank Act was signed into law last February 14, as Republic Act No. 11211, and it restored the BSP’s authority to issue central bank debt papers for the BSP to use particularly during times when there are structural surplus liquidity.
In the 1980s, the BSP was allowed to issue bonds, known as the JOBO Bills after Governor Jose “Jobo” Fernandez Jr. However, Congress at the time disapproved of how the JOBO Bills increased interest rates by 40 percent.
After the central bank lost its authority to issue bonds, an informal agreement between the BSP and the Department of Finance was made, that only the government will tap the bonds market while the BSP will concentrate on the loans market.