THE PHILIPPINE Dealing and Exchange Corp. (PDEx) will introduce the country’s first peso-denominated interest rate hedge next week as part of efforts to boost activity in the fixed-income market.
PDEx President and Chief Executive Officer Antonino A. Nakpil said the bond trading platform will launch a new derivative product called government bond forward contracts, which will be initially available to banks.
“We’re launching that (government bond forward contracts) next week, Monday (Feb. 3). We’re excited about that because that’s the first purely Philippine peso-denominated interest rate hedge,” he told reporters on the sidelines of a recent Financial Executives Institute of the Philippines event in Makati City.
“It will be available to the banks first, the inter-dealer first, and then later on to clients who may find that useful,” he added.
Mr. Nakpil previously said that the Securities and Exchange Commission approved the market framework and infrastructure to offer the trading of government bond forward contracts on Jan. 2.
According to Mr. Nakpil, bond forward contracts, which designate a fixed price for a debt security on a future date and let market participants hedge interest rate risks, will help provide a new dynamic to the country’s fixed-income markets.
“It’s a derivative, it’s a new thing. It will be settled in a way that is unique. We’re not creating a futures contract like in the traditional sense. It is a forward expression of what has been established as a method of hedging in the futures markets. We’re using an over-the-counter forward expression of that,” he said.
“It’s a first. We’ll see if it works. We think it will work. It’s not a futures contract so there’s no leverage on it,” he added.
Mr. Nakpil said the new product is not meant for retail investors due to its complicated nature.
“We’ll allow only the dealers and then qualified investors. Basically, professionals only. This is not meant for the retail investors.” Mr. Nakpil said.
“Some contracts are not meant for retail investors, especially if there’s leverage involved. Once you involve leverage like futures contracts, it becomes complicated,” he added.
Sought for comment, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that this will help further develop capital markets in the country.
“This will give greater flexibility to manage interest rate risk in the local market and would give market players the ability to at least hedge their market risks or take trading positions based on their view on interest rate direction,” Mr. Ricafort said.
He noted this would allow local markets to adopt standards in more developed markets to cater to the demands of investors.
The PDEx is aiming to have P600 billion worth of corporate bond listings this year.
The bond trading platform saw P360 billion in 2024, missing its target of P400 billion.
However, Mr. Nakpil said the target could be changed due to geopolitical risks.
“We’re not sure of the P600 billion. We’ll be refocusing. We’ll see whether it’s reachable this year,” he said. — Revin Mikhael D. Ochave