MANILA, PHILIPPINES (15 September 2021) — The coronavirus disease (COVID-19) pandemic’s resurgence in recent months has dampened investor sentiment in emerging East Asia even as accommodative policy stances have kept financial conditions stable, according to the latest issue of the Asian Development Bank’s (ADB) Asia Bond Monitor.

The People’s Republic of China (PRC), Indonesia, Malaysia, Thailand, and Viet Nam posted declines in yields on short-term (2-year) and long-term (10-year) government bonds from 15 June to 27 August. The decline of long-term bond yields in most markets tracked looming uncertainty about recovery prospects amid rising COVID-19 cases. Equity indexes dropped and currencies depreciated in most emerging East Asian markets, while foreign portfolio investments flowed outward.

Local currency bond markets in emerging East Asia grew to $21.1 trillion at the end of June, driven by the continuing increase in government bond issuance. Governments continued to tap local currency bond markets to support pandemic containment and recovery. Outstanding local currency bonds increased 2.9%, accelerating from 2.2% the previous quarter. Government bonds increased 3.3% to $13.1 trillion, compared with 2.1% growth in the previous quarter.

“The emergence of COVID-19 variants and renewed mobility restrictions in some places are stifling the earlier momentum toward a sustained recovery,” said ADB Acting Chief Economist Joseph Zveglich, Jr. “However, financial conditions in emerging East Asian economies remain stable, even as they cope with the continuing uncertainty. Some central banks have used small-scale asset purchase programs to improve bond market liquidity and boost private investor confidence. Long-term debt is making up more of the region’s local and foreign currency debt structure, and the region’s sustainable bond markets are expanding.”

Emerging East Asia comprises the PRC; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam. 

Growth in sustainable bonds in the Association of Southeast Asian Nations (ASEAN) economies jumped to 30.4% from 0.6% in the prior quarter, reaching $23.6 billion at the end of June. Sustainable bonds in the ASEAN region plus the PRC; Hong Kong, China; Japan; and the Republic of Korea totaled $345.2 billion, equivalent to 19% of global sustainable bond stock. Green and sustainability bond issuance in the region during the first half of 2021 exceeded the issuance for all of 2020.

Market risks remain rooted in the resurgence of COVID-19 and its impact on the region’s economic recovery. Coupled with a strong recovery in the United States (US), this could push further capital outflows and local currency depreciation that will increase external debt burdens. Potentially higher US bond yields could spill over to the region and increase local currency financing costs.

The latest issue of the Asia Bond Monitor discusses the likelihood of a strong but divergent global economic recovery amid uneven vaccination and growth rates; emerging East Asian central banks’ asset purchase programs; and debt buildup in the region. Other highlighted issues include the growing importance of incorporating social risks into the investment value chain and expanding the use of social bonds to support projects related to health care, clean water, food security, and gender equality.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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