Asia Bond Monitor - November 2012
The global economy that emerging East Asia faces remains weak, with the growth in the US struggling to gain momentum and the eurozone economies slipping back into recession.
At the same time, the growth outlook for the region's economies has also worsened with the People's Republic of China's (PRC) growth expected to be at its lowest since the global financial crisis. The looming fiscal cliff in the US and unresolved debt crisis in Europe continue to weigh on investor sentiment.
Some of the findings in the Asia Bond Monitor November 2012 report include:
- Despite the uncertainties in global financial markets, the performance of local currency (LCY) bond markets has been robust;
- The five most rapidly growing government bond markets in 3Q12 on a quarter-on-quarter (q-o-q) basis were Malaysia, Singapore, the PRC, the Philippines, and Thailand;
- Issuance in emerging East Asia in 3Q12 totaled US$826 billion, a decrease of 3.8% on a q-o-q basis and 4.5% on a y-o-y basis;
- Risks to the region's LCY bond markets are biased toward the downside. These risks include (i) the fiscal cliff that threatens the US recovery, (ii) the surge of capital inflows into the region, and (iii) higher inflation on supply-side shocks;
- The shocks emanating from mature government bond markets during the US and eurozone crises have had indirect spillovers; the effects were transmitted to domestic money markets, foreign exchange, and local bond markets;
- Volatility spillovers were directly transmitted to Asian local bond markets during the US and eurozone crises. Significant volatility spillovers have also been observed in Asian equity, currency, and money markets, underlining the threat of wider financial market contagion;
- The feedback and transmission of shock and volatility spillovers across Asian domestic financial markets underscore the importance of monitoring and coordinating policies not just within national jurisdictions, but also in the regional and global settings in order to maintain financial stability; and
- Foreign investors have continued to expand their share of bond holdings in most markets. Pensions and insurance companies are rapidly increasing their shares of government bond holdings in both Thailand and the Philippines, while government agency and social security holdings of government bonds in the Republic of Korea are increasing steadily. Retail investors are also increasing their shares in some local bond markets.
This publication reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 members of the Association of Southeast Asian Nations plus the People's Republic of China; Hong Kong, China; and the Republic of Korea.
- Introduction: Global and Regional Market Developments
- Bond Market Developments in the Third Quarter of 2012
- Policy and Regulatory Developments
- AsianBondsOnline Annual Bond Market Liquidity Survey
- Market Summaries