ADB report: Emerging East Asia bond markets expand, see demand

By Jennifer Chiou

New York, Sept. 1 - Asian Development Bank stated in this month's edition of the Asia Bond Monitor that local currency bond markets in emerging East Asia continued to expand in the first half of 2011 as demand from foreign investors increased.

The report said that the region's economic growth set to outpace much of the rest of the world. According to ADB, emerging East Asia had $5.5 trillion of local currency bonds outstanding at the end of June, 2.4% higher in local currency terms than at the end of March and 7.7% more than at the end of June 2010.

Emerging East Asia includes China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam.

The bank said that the fastest growing markets overall in the second quarter of 2011 were Vietnam (up 5%), Singapore (up 4.3%) and Malaysia (up 3.7%) versus the previous quarter.

China, which has driven the swift expansion in the region's markets in the past, grew 2.7%, reflecting a modest 1.6% increase in its government bond market, the report added.

ADB said that the growth was particularly driven by corporate bonds, which grew by 4.4% to $1.8 trillion in the second quarter over the first quarter. China's corporate bond market grew at a rapid pace of 6.3% in the same period and is now the region's largest corporate bond market, overtaking Korea.

"There has been a bullish flattening of government yield curves in most markets. We are seeing compression of yields at the long end, reflecting market concerns of slowdown in growth," Iwan Azis, head of ADB's office of regional economic integration, said in a bank release.

"We expect monetary authorities to adopt a more neutral policy stance as they move to cushion against any anticipated slowdown in mature markets."

Risks include a severe economic slowdown in mature economies that will hit Asian exports, destabilizing capital flows, poorly timed policy action by mature markets and potential commodity price fluctuations, the bank added.

Asian Development Bank is an international development finance institution based in Manila.

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