ABF local currency lending to improve regional liquidity

Published June 29, 2018, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The 11 central banks of the Executives’ Meeting of East Asia Pacific (EMEAP) will start investing in local currency bonds in the Asian Bond Fund (ABF) Pan Asia Bond Index Fund (PAIF) next month to improve liquidity in the region.

The EMEAP, which includes the Bangko Sentral ng Pilipinas (BSP), has set July 10 to launch the securities lending in PAIF. These local currency-denominated bonds held within PAIF will be made available for lending in the regional securities lending markets, according to an EMEAP statement.

The EMEAP said it “believes that PAIF will improve the liquidity of local currency-denominated bonds in the secondary markets, consistent with the EMEAP’s common goal to broaden and deepen bond markets in the region (and that PAIF) will help to enhance the functioning of regional money markets.”

But, the central banks have further to go and will need to cooperate more to develop the regional bond markets, it added.

The EMEAP two years ago has said that it will focus on local currency bonds or ABF2 and will shift away from the foreign currency ABF1. ABF1 was closed in 2016 and reinvested to ABF2. ABF2, comprising the Pan-Asia Bond Index Fund (PAIF) and eight single-market funds, is managed by private-sector fund managers with the Bank for International Settlements as the administrator. It invests in local currency-denominated government and quasi-government bonds in EMEAP economies other than Australia, Japan, and New Zealand.

The Asian local-currency bond markets have expanded since ABF1 was created in 2003. Between 2003 to 2015, the size of local currency-denominated bonds in Asia ex-Japan has grown from $125 billion to $1 trillion.

The EMEAP members are East Asia and Pacific central banks and monetary authorities. These are BSP, Reserve Bank of Australia, People’s Bank of China, Hong Kong Monetary Authority, Bank Indonesia, Bank of Japan, Bank of Korea, Bank Negara Malaysia, Reserve Bank of New Zealand, Monetary Authority of Singapore, and Bank of Thailand.