(Bloomberg) -- Trading of interest-rate swaps began in the Philippines Monday with counterparties starting to quote prices via instant messaging, bankers said, and deals executed with a one-month tenor.
The move, intended to boost bond trading liquidity and deepen domestic capital markets, follows an International Swaps and Derivatives Association’s announcement on Friday that recognized the Philippine overnight reference rate, to which the swaps will be anchored.
Volume traded reached 250 million pesos ($4.3 million), according to data compiled by the Bankers Association of the Philippines. Transactions were carried out manually, bankers said, asking not to be identified because they’re not authorized to speak to media.
IRS, a staple derivative contract in more developed fixed-income markets, enables parties to manage interest-rate risks by exchanging one stream of future interest payment for another. Volumes are expected to pick up as players become more comfortable with the market and when companies start participating, some bankers said.
“It may take a bit of time for price discovery,” Paul Favila, country manager at Citibank Philippines and chairman of the open market committee of the Bankers Association of the Philippines, said in a mobile-phone message.
“We are excited for PESO IRS to go live to help boost transactions, create a benchmark yield curve, and deepen our capital markets,” Philippine central bank Governor Eli Remolona said in a statement. The primary aim is “to provide the liquidity investors need to invest in our fast-growing economy,” he said.
Sixteen banks, including BDO Unibank Inc., Bank of the Philippine Islands and Metropolitan Bank and Trust Co., are acting as market makers and quoting two-way prices for swaps against the ORR, which serves as the benchmark floating rate, according to the bankers association.
Deals are likely to gain traction once demand from corporations come in, said Rafael Algarra, senior executive vice president and head of financial markets and wealth management at East West Banking Corp. “There will be a better appreciation of the market once clients get used to it,” he said, adding there’s a need to educate clients on the hedging facility.
The IRS market is open from 9 a.m. to 4 p.m. The market’s launch is part of the broader push to make Philippine assets more accessible to foreign and local investors. Trading will eventually migrate to the Bloomberg LP trading platform, market participants said. Bloomberg LP is the parent company of Bloomberg News.
--With assistance from Andreo Calonzo.
(Updates with comments from market participants.)
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