BSP keeps $250-M ABF investments

The Bangko Sentral ng Pilipinas’ (BSP) participation amount in the local-currency Asian Bond Fund (ABF2) is now at $250 million after adjustments.

This is the total investment that was transferred from the ABF1 which the Executives’ Meeting of the East Asia-Pacific Central Banks (EMEAP) has closed.

ABF1 had exposures in a basket of dollar-denominated bonds issued by sovereigns in Asia, while ABF2 - a Pan Asian bond fund -- has several single market funds or bond exchange traded indices.

BSP Governor Amando M. Tetangco Jr. said “it was the decision of the EMEAP governors to close down the ABF1, as they were of the view that ABF1 had fulfilled its intended role of being a catalyst for the development of Asian bonds as an asset class.”

The BSP used to maintain about $200 million in ABF1. The central banks in the region put up ABF1 about 13 years ago in preparation for ABF2.

“The EMEAP migrated the proceeds of the ABF1 into ABF2, which invests in local currency denominated bonds of the EMEAP countries (ex Japan, Australia and New Zealand),” said Tetangco.

The BSP has been engaging in a continued process of reviewing its foreign asset diversification strategy, especially investments in emerging market debt or EMD.

Last month the 11 central banks of the EMEAP shifted from ABF1 to ABF2 to encourage local-currency bond market development in the region.

The Asian local-currency bond markets have expanded since ABF1 was established. From 2003 to 2015, the issuance of local currency-denominated bonds in Asia ex-Japan increased from $125 billion to $1 trillion last year.

The EMEAP group decided that ABF1 has “achieved its original purpose and that the fund should be closed.”

“The proceeds are being reinvested in ABF2 over the course of several months, to ensure a smooth transition and minimal market impact,” it said, adding that central banks in the EMEAP group “remain committed and unified in their support for the ABF initiative.”

The ABF1 is managed by the Bank for International Settlements (BIS) on behalf of EMEAP central banks and invests in US-dollar denominated bonds issued by EMEAP economies other than Japan, Australia and New Zealand.

ABF2, comprising the Pan-Asia Bond Index Fund and eight singlemarket funds, is managed by privatesector fund managers with the BIS as the administrator. It invests in local currency-denominated bonds in EMEAP economies other than Japan, Australia and New Zealand.