BSP plans to invest $100M in phase 2 of Asian Bond Fund

The Bangko Sentral ng Pilipinas (BSP) is planning to invest at least $100 million in phase 2 of the Asian Bond Fund (ABF), a facility created by 10 central banks and monetary authorities in the East Asia and Pacific region comprising the Executives’ Meeting of East Asia Pacific Central Banks (EMEAP).

The BSP announced over the weekend that although the Philippine itself was not qualified for ABF investments, it could benefit by investing in the Fund which would in turn invest the funds in markets that are qualified.

The ABF2, according to BSP Governor Rafael B. Buenaventura, will invest in domestic currency bonds issued by sovereign and quasi-sovereign issuers in EMEAP economies, except Australia, Japan and New Zealand.

Buenaventura said ABF2 would build on the successful launch of the first stage of the Asian Bond Fund (ABF1) in June 2003, which invested in dollar-denominated bonds issued by sovereign and quasi-sovereign issuers in the eight EMEAP markets.

EMEAP members’ investment in the ABF2 will be around $2 billion, an amount which Buenaventura said the EMEAP Group considered appropriate.

"The amount is neither too large that it would crowd out private sector investors nor too small that it could not benefit from economies of scale in terms of supporting the necessary infrastructure for the Fund," he said.

Buenaventura explained that the framework for ABF2 comprised the Pan-Asian Bond Index Fund (PAIF) and the eight Country Sub-Funds. Implementation of ABF2 is divided into two phases: Phase 1 investment will be confined to EMEAP central banks only, whereas in Phase 2 the eight Country Sub-Funds and the PAIF will be open to investment by other public and private sector investors.

Buenaventura said the portion of the Philippines in the PAIF and the Philippine Sub-Fund would be invested mostly in government securities. For phase 2, the Philippine Sub-Fund was intended to be listed either at the Philippine Stock Exchange (PSE) or at the soon-to-be launched Fixed Income Exchange (FIE).

"The listing of the Philippine Sub-Fund will facilitate price discovery and enhance the secondary trading of the fund," he said.

Buenaventura said the launch of ABF2 marked a watershed in central banking cooperation to promote the development of the domestic and regional bond markets in Asia.

"The ABF2 will have a significant developmental impact on the Philippine domestic bond market," he said.

Buenaventura said the fund would be catalytic in the promotion of new products, the improvement of market infrastructure and minimization of regulatory hurdles.

"In the end, it will help broaden and deepen domestic and regional bond markets and hence contribute to more efficient financial intermediation in the longer term," he pointed out.