Investors often lament the relative lack of maturity of Asia's debt market, but Singapore, at least, is taking action to improve price certainty for corporate bonds and thereby boost trading volumes.

The head of the Monetary Authority of Singapore (MAS) outlined three initiatives yesterday aimed at boosting efficiency and liquidity in the city-state's corporate debt market. 

The moves, in turn, will help to develop Singapore’s asset management industry further, says MAS managing director Ravi Menon, speaking at the Investment Management Association of Singapore conference, which was sponsored by AsianInvestor

The MAS’s first measure will be to provide swap liquidity to primary dealer banks handling Singapore dollar debt issuance for foreign corporates. Menon notes that these offshore entities typically have no need for the Singapore dollar funds raised and mostly swap them into a foreign currency, usually US dollars.  

Although the pricing mechanism in the foreign exchange and cross-currency swap market is efficient, he says, swap markets have a tendency towards one-way flow because of Singapore’s excess savings over investments. This can lead to uncertainty in the bond issuance pricing process. 

To remedy this, MAS will support swap trades at market-determined prices, which ultimately will enable swap market liquidity to build in the longer tenors, says Menon. 

Secondly, he says, MAS will partner with the industry to create a Singapore dollar corporate debt securities-lending platform, from which “key players” will be able to borrow securities for market-making. 

By providing greater assurance that banks will be able to deliver any given security, the new platform will reduce the risk of market-makers being squeezed in the event that they can’t short-cover bonds they have sold. Improved market liquidity will mean asset managers can be more certain of being able to enter and exit positions with minimal price slippage.

The regulator’s third move will be to initiate a price discovery platform, to which market participants will contribute end-of-day prices for a range of Singapore dollar corporate bonds.

MAS aims to have it in place by the second half of this year. Menon says this initiative will improve transparency in the corporate bond market significantly and provide reliable mark-to-market prices for the industry and asset managers alike.