MODERATE RATE: East Asia’s local currency markets continue to expand, but at a slower rate.
MANILA: Emerging East Asia’s local currency bonds are still in demand from domestic and offshore investors, but the region’s markets face increasing challenges, said the latest Asia Bond Monitor released Tuesday.
East Asia’s local currency markets continue to expand, but at a slower rate. By the end of September, the region had US$5.5 trillion in outstanding bonds, 5.5 per cent more than a year earlier in local currency terms.
The expansion in the third quarter was largely due to strong growth in the region’s corporate bond market, which expanded by 15.4 per cent, while the government bond market grew by a smaller 1.3 per cent, Xinhua news agency quoted the report as saying.
“Asia’s low debt levels, strong economic fundamentals and the yield pick-up compared with bonds of developed markets contribute to the attractiveness of local bonds,” said Iwan J Azis, Head of the Asian Development Bank’s (ADB) Office of Regional Economic Integration.
Still, risks to the outlook included growing uncertainty surrounding the European economies, which was generating volatility in global and regional markets and a flight to safe-haven investments.
Furthermore, the slowdown in Asia’s economic growth and the potential for abrupt capital outflows were also challenges, said the report. Yield curves in most markets had flattened and in some cases shifted downwards as markets and policymakers focus on supporting growth rather than stemming inflation.
Declining yields, particularly for longer-dated bonds, offered governments in the region an opportunity to raise cost-effective debt should they need to finance additional borrowing.
Vietnam was the fastest-growing local currency bond market in the third quarter, expanding 22.2 per cent on year to US$17 billion.
Its corporate bond market grew by 34.7 per cent with the government bond market increasing 21.1 percent. China had the largest local currency bond market in emerging East Asia with US$3.2 trillion in bonds outstanding at the end of September.
That was 3.5 per cent more than a year earlier and 0.5 per cent more than that at the end of June.
Bond issuance in the region totalled US$829 billion in the third quarter, up 7.6 per cent versus the second quarter but down 19.9 per cent year-on-year as central banks reduced sales to offset foreign exchange inflows. Corporate issuance was also down 24.4 per cent on a year-on-year basis. The decline, however, was from extraordinarily high levels in 2010. — Bernama