Asia Bond Monitor - September 2011

The external environment facing emerging East Asia is bleak. Market turbulence has prompted safe haven flows into gold, long-dated bonds, and higher quality corporate papers. The unresolved sovereign debt issues in the United States (US) and the ongoing eurozone debt crisis have led investors to re-think definitions of risk-free and risky assets.

Rising inflationary pressures in the first half of 2011 led to a steady stream of policy rate hikes across the region. However, the monetary policy stance in most markets could become more neutral as authorities in the region move to cushion against any anticipated slowdown in mature markets.

Capital flows into emerging East Asian bond markets remain strong as investors chase yields. Relatively strong economic fundamentals, interest rate differentials, and the potential appreciation of regional currencies are all key pull factors.

There has been a bullish flattening of government bond yield curves in most markets. Yields dropped sharply after the recent downgrade by Standard and Poor’s (S&P) of its sovereign rating for the United States to AA+ from AAA.

Here are some highlights in this issue:

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.

  • Highlights
  • Introduction: Global and Regional Market Developments
  • Bond Market Developments in the Second Quarter of 2011
  • Policy and Regulatory Developments
  • Market Summaries

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