ADB: Emerging East Asia bond issuance grows 12% to $875 billion in Q2

By Angela McDaniels

Tacoma, Wash., Sept. 10 - Regional issuance in emerging East Asia totaled $875 billion in the second quarter, a 12% increase over the first quarter, according to the Asian Development Bank's quarterly Asia Bond Monitor.

ADB said the increase was largely due to increased government bond issuance and, to a lesser extent, central bank issuance.

The People's Republic of China was the largest contributor to this growth, according to the report. It sold $200 billion of treasury bonds in the second quarter, a 70.3% increase on the quarter and a 27.0% increase on the year.

On a quarter-over-quarter basis, the five most rapidly growing markets were Vietnam (10.5% growth), Thailand (4.1%), Indonesia (3.6%), Singapore (3.2%) and the Philippines (2.9%).

On a year-over-year basis, the most rapidly growing bond markets in the second quarter were Vietnam (28.5% growth), Thailand (17.7%), Singapore (15.8%), Malaysia (15.0%) and the Philippines (12.4%).

In total, $5.9 trillion of bonds were outstanding in emerging East Asia's local-currency market at the end of June, 1.9% more than at the end of March and 8.6% more than at the end of June 2011.

At the end of 2011, emerging East Asia's share of the global bond market was 8.4%, up from 8.1% at the end of September 2011. China and the Republic of Korea were the two largest bond markets in the region outside of Japan and had global shares of 5.0% and 1.8%, respectively.

China had $3.5 trillion of bonds outstanding at the end of June, 1.5% more than three months earlier and 6.9% more than a year earlier.

Corporate bonds grow more

Overall, corporate bond market growth is still outpacing the expansion of the government bond markets as lower yields and tighter bank lending ahead of new bank regulations in many markets encourage firms to raise funds from local markets, ADB said.

Issuance of corporate bonds grew by 3.1% quarter over quarter, compared with 1.3% growth for government debt.

At the end of June, there were $2.0 trillion of corporate bonds outstanding, 15.2% higher than a year earlier, while the $3.9 trillion government bond market was only 5.5% bigger that a year earlier.

The countries with the greatest quarter-over-quarter corporate bond growth in the second quarter were the Philippines (11.5% growth), Indonesia (7.4%), Singapore (5.8%), Korea (3.6%) and Malaysia (3.2%).

On a year-over-year basis, the countries with the greatest increase in corporate bond issuance were Indonesia (25.9%), the Philippines (18.7%), Singapore (18.3%), Thailand (16.9%) and China (16.5%).

Foreign holdings taper

ADB said the rapid growth of foreign holdings in the region's local-currency bond markets tapered off in the first half of 2012 except in Malaysia and Thailand. Foreign holdings of Malaysian government bonds rose to 27.3% of the total at the end of March, and foreign holdings of Thai government bonds rose to 13.2% of the total at the end of June.

In ADB's view, the risks to the region's local-currency markets include additional stimulus measures leading to increased government bond issuance, volatile capital flows and worsening investor sentiment as the global economic outlook dims.

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