Asia Bond Monitor - April 2012 | Asian Development Bank

Asia Bond Monitor - April 2012

Publication | April 2012
Asia Bond Monitor - April 2012

The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. This issue has a section on intraregional portfolio debt investment.

The external environment facing emerging East Asia remains challenging as the eurozone sovereign debt crisis lingers, while volatility in the financial markets reflects concerns over the sustainability of the economic recovery in the United States (US). The rally in US and emerging market equities witnessed in the first quarter of 2012 (1Q12) has consolidated somewhat since the beginning of April as markets turn their focus to challenges facing Spain, Portugal, and other peripheral economies in the eurozone.

Growth in most emerging East Asian economies is expected to remain robust this year, driven by domestic demand and reconstruction activities, as Japan and Thailand recover from last year’s natural disasters and supply disruptions. The expansion of government spending in several other emerging East Asian countries should also support domestic growth.

Some highlights of this issue include:

  • The inflows to emerging East Asia’s LCY bond markets—spurred by interest rate differentials and easy money conditions in mature markets—are expected to exert downward pressure on domestic yields. This trend could accelerate in 2012 in anticipation of the appreciation of domestic currencies.
  • Most government bond yield curves flattened significantly in 2011, particularly in Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; and Singapore.
  • Government bond yield curves in most markets either continued to flatten or shifted downward in 1Q12. However, yield curves in some markets, most notably the People’s Republic of China (PRC) and Thailand, have shifted upward since the beginning of the year.
  • Total bonds outstanding in emerging East Asia’s LCY bond market grew 7.0% year-on-year (y-o-y) in 4Q11, up from 5.7% growth in 3Q11. The government bond market grew a modest 2.5% y-o-y in 4Q11, while the corporate segment of the region’s bond market grew at a much more robust rate of 17.1%, following 14.8% growth in 3Q11.
  • Contractual savings institutions (CSIs have become an increasingly important investor class in the emerging East Asian bond market in recent years. In the PRC, Malaysia, and the Republic of Korea, CSI holdings of corporate bonds have become a key factor supporting corporate bond market growth.
  • Foreign investors’ interest in the region’s LCY government bond market remains strong. The Republic of Korea, Malaysia, and Thailand experienced an increase in the share of foreign holdings of their respective LCY government bonds at end-December 2011 compared with end-December 2010. In the case of Indonesia, the share of foreign holdings leveled off at end-2011 after having risen sharply in recent years.

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 Fourth Quarter of 2011
  • Policy and Regulatory Developments
  • Intraregional Portfolio Debt Investment
  • Market Summaries