Philippines Faces Bond Calculation Shift Amid JPMorgan Index Inclusion

The Philippines is set to be included in the JPMorgan Government Bond Index on January 29, 2027, a move generally welcomed for its potential to boost international investment in Philippine sovereign debt. However, concerns are surfacing among some bank treasurers about the significant "price to pay" for this inclusion, not just for banks but also for bondholders and the investing public. The core of the concern lies in the country's commitment to align its local bond computation with international standards. A new convention is slated for implementation by September 15 to meet index requirements. Essentially, the proposed amendment to bond pricing will remove the price adjustment between the gross principal and the net principal. Market players fear that this adjustment could erode the profitability of banks holding government securities in their trading books. Retail investors and trust clients of these banks may also face adverse effects. Some market participants lament that banking regulators have not yet issued, and may not issue, a circular mandating this change in bond convention, which has been in place since the 1990s. They express a desire for the shift to be a "market initiative." However, if the bond recomputation leads to substantial losses, bankers are worried about their vulnerability to legal complaints. "Somewhere down the road, someone could sue the bank and say, why change the computation at our expense?" a senior banker told Biz Buzz. Consequently, the open market committee of the Bankers Association of the Philippines (BAP) reportedly intends to request a circular from the Bangko Sentral ng Pilipinas (BSP) directing them to adopt the new method. This appeal is currently under deliberation by the BAP board. Banks are seeking a formal directive to protect themselves from potential lawsuits should the change be mandated. An alternative suggested is for the Bureau of Treasury, as the issuer of government bonds, to undertake a bond swap. However, this approach might be challenging to explain to the Commission on Audit. Ultimately, banks are expected to comply. "But where's the circular so we can adjust product manuals and system?" a source questioned. Furthermore, there is doubt regarding the market's readiness to execute this significant shift by the September 15 target date. While joining the JPMorgan bond index is a notable achievement, many in the dealing rooms are not yet celebrating, acknowledging that "there's still a lot of work to be done."