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MB Revises Rules on Valuation of GS

Posted on September 27, 2013

MANILA, (PNA) — The Monetary Board (MB) has amended the rules that govern the valuation of government securities (GS) held by banks.

The changes are meant to better reflect market valuation for said instruments by promoting price consistency and enhancing price discovery.

Under the new guidelines, bank-held GS shall now be valued based on actual transacted (“done”) rates in the secondary market. This will be applied regardless of whether the GS held by banks are classified as benchmark or non-benchmark securities.

The previous valuation guideline made the distinction between benchmark and non-benchmark securities. The former used actual rates in the secondary market. The latter, however, was valued on the books of the banks by interpolating between two adjacent benchmark bonds.

There are currently 12 benchmark GS tenors in the country: the 1-month, 3-month, 6-month, 1-year, 2-year, 3-year, 4-year, 5-year, 7-year, 10-year, 20-year, and 25-year tenor buckets. Securities whose remaining tenors fall within these tenor buckets are considered benchmark bonds, while those that cannot be slotted in them are non-benchmark securities.

In the absence of “done” rates, the GS for a particular tenor bucket would be valued using a simple average of the bid rates for securities of that tenor bucket. Only in the absence of “done” and bid rates will the yields of GS be “interpolated” from benchmark rates.

The enhancement of the valuation guidelines for GS is essential to developing the country’s capital markets. In turn, deepening of the domestic capital market bolsters financial stability which is a key objective of the Bangko Sentral ng Pilipinas.

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