Asia Pacific central banks shift from $ to local currency bonds

MANILA, Philippines - Central banks in East Asia and the Pacific region including the Bangko Sentral ng Pilipinas (BSP) are closing their dollar denominated bond fund and transferring the investment to a local-currency bond fund.

The decision of the Executives’ Meeting of East Asia Pacific (EMEAP) central banks to close the Asian Bond Fund (ABF1) is a stepping stone to set up the ABF2 as part of efforts to enhance the local-currency bond market.

Data showed the Asian local-currency bond markets have grown steadily since the inception of ABF1, registering a near eight-fold increase to $1 trillion in 2015 from $125 billion in 2003.

The ABF1 was established in 2003 to support local-currency bond market development and offer the group of 11 central bank members a diversified regional investment product for the reserves management.

The fund was managed by the Bank for International Settlements (BIS) and was invested in dollar denominated bonds issued by sovereign and quasi-sovereign in EMEAP economies other than Japan, Australia, and New Zealand.

On the other hand, the ABF2 comprising of Pan-Asia Bond Index Fund (PAIF) and eight single-market funds is managed by private-sector fund managers and administered by the BIS.

The ABF2 invests in local currency-denominated bonds in EMEAP economies other than Japan, Australia, and New Zealand.

Last April, the EMEAP Group decided to close the ABF1 as it has achieved its original purpose and would be reinvested in ABF2 over the course of several months to ensure a smooth transition and minimal market impact.

The central banks in the region remain committed and unified in their support for the Asian Bond Fund initiative.