Interest rate swap volumes surge in Philippines, Remolona says

Interest-rate swap transactions in the Philippines have jumped more than 60-fold since the launch of a peso IRS facility in late 2024, the nation’s central bank chief said, citing that a deepening market may improve the effectiveness of monetary policy.

Trading volume in the derivatives have jumped to P43.5 billion ($739 million) in January from P700 million in 2024, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said late Wednesday with one- and three-year tenors active.

The surge in peso interest-rate swap trading shows investors are embracing the revamped facility to hedge any uncertainties in the central bank’s policy path. Growing activity is also helping improve price discovery.

“The market is starting to form interest-rate expectations and starting to hedge interest rate risk over policy-relevant horizons,” Mr. Remolona said in a keynote speech during a Bloomberg event in Makati City. “A deeper IRS market strengthens our monetary policy transmission mechanism, improves reference pricing, and it helps anchor expectations.”

Over time, Mr. Remolona said, he’d like to see the bond markets converge around the swaps curve. “This market is, to us, a backdoor to building a benchmark yield curve, something our markets need very badly,” he said.

Interest rate swaps, a staple hedging facility in more developed fixed-income markets, allows parties to protect themselves against changes in market interest rates or take positions on the direction of borrowing costs by exchanging one stream of future interest payments for another.

Clients’ use of the derivative is “very nascent,” said Paul Favila, chairman of the Bankers Association of the Philippines’ open market committee and a country manager for Citibank. Even so, the early activity is “very encouraging,” he said, as the build-up of historical data and volumes are a “clear indication of the market evolving.” — Bloomberg