Asia Bond Monitor - November 2011
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 the results of the AsianBondsOnline Annual Bond Market Liquidity Survey.
The global outlook facing emerging East Asia has deteriorated significantly in recent months with weaker growth now expected in Europe and an uncertain pace of recovery in the United States (US). This slowdown—exacerbated by ongoing sovereign debt issues in the eurozone—is heightening risk aversion and generating volatility in global financial markets.
The recent bouts of financial market volatility are a timely reminder of the region’s continued vulnerability to external shocks. Emerging markets have not been spared the impact of dampening market sentiments in developed economies as the end of 3Q11 saw substantial portfolio outflows from the region. However, this trend reversed itself somewhat in October.
A slowdown in growth and an easing of inflationary pressures in 3Q11 has moved the policy focus in emerging East Asia toward supporting growth. Authorities in many economies had begun tightening liquidity in late 2010, but in most cases they have suspended these efforts.
Some highlights of this issue include
- Total bonds outstanding in emerging East Asia’s local currency (LCY) market rose 5.5% on a year-on-year (y-o-y) basis—and 1.0% on a quarter-on-quarter (q-o-q) basis—to reach US$5.5 trillion at the end of 3Q11, driven mainly by strong growth in corporate bonds. On a y-o-y basis the region’s most rapidly growing LCY bond markets in 3Q11 were Viet Nam, Malaysia, Singapore, and the Republic of Korea.
- Total government bonds outstanding grew only 0.5% q-o-q in 3Q11, reflecting negative or only marginal growth rates in most markets. The People’s Republic of China’s (PRC) government bond market expanded only 0.1% q-o-q. The region’s most rapidly growing government bond markets in 3Q10 on a q-o-q basis were Thailand; Malaysia; Viet Nam; and Hong Kong, China.
- Bonds issued by provinces and other local governments may emerge as a new asset class in the region’s LCY bond market over the coming year. In emerging East Asia, Thailand has taken steps to permit the issuance of bonds by its local governments. Furthermore, recent announcements that the PRC government has approved bond issuance by some of its provincial and municipal governments—in their own name—signal another new source of bond issuance.
- Growth of the region’s LCY corporate bond market in 3Q11 was 2.0% q-o-q, led by the Republic of Korea and Malaysia.
- LCY bond issuance in emerging East Asia totaled US$829 billion in 3Q11—a 19.9% decline on a y-o-y basis but a 7.6% rise on a q-o-q basis. The principal cause of the y-o-y decline was the curtailment of issuance by central banks and monetary authorities as they either sharply reduced sterilization activities over the last year or shifted to tools other than bills and bonds to reduce liquidity growth.
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.
- Emerging East Asian Local Currency Bond Markets: A Regional Update
- Introduction: Global and Regional Market Developments
- Bond Market Developments in the Third Quarter of 2011
- Policy and Regulatory Developments
- AsianBondsOnline Annual Bond Market Liquidity Survey
- Market Summaries
- People's Republic of China - Update
- Hong Kong, China - Update
- Indonesia - Update
- Republic of Korea - Update
- Malaysia - Update
- Philippines - Update
- Singapore - Update
- Thailand - Update
- Viet Nam - Update