Asia Bond Monitor - November 2013
The Asia Bond Monitor reviews developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 ASEAN members, People's Republic of China; Hong Kong,China; and Republic of Korea.
Bond markets in emerging East Asia have regained some of their recent losses as global financial markets have stabilized. The United States Federal Reserve's announcement that economic conditions did not yet warrant the start of tapering buoyed financial markets and helped drive down bond yields in the US.
The delay in tapering can help ensure that the US economy is on stronger footing, which can provide a helpful boost to the region's growth prospects. This also offers more time for the region to prepare for the eventual normalization of US monetary policy.
Governments in emerging East Asia should use this window of opportunity to strengthen their economies and focus on further structural reforms. The resilience of the region's financial systems also needs to be improved to better handle the possible turmoil ahead.
The risks to the region's local currency bond markets have receded slightly as the prospects of the Federal Reserve tapering its quantitative easing operations this year becomes increasingly unlikely. Specifically, risks include the following:
- the region's bond markets remain susceptible to sudden shifts in global investor sentiment,
- tighter liquidity conditions could impact financial stability in the region's economies, and
- volatile capital flows make policymakers' efforts to stabilize the economy more difficult.
Some highlights from this issue of the Asia Bond Monitor include:
- Emerging East Asia's local currency bonds outstanding grew 2.4% quarter-on-quarter and 12.5% year-on-year to reach $7.1 trillion in 3Q13, propelled by growth in both the government and corporate bond sectors.
- As a share of gross domestic product, the size of the region's bond market climbed to 55.6% in 3Q13 from 55.1% in 2Q13.
- The most rapidly growing bond markets on a quarterly basis in 3Q13 were Indonesia (3.9%), the Philippines (3.6%), the People's Republic of China (PRC) (3.0%), the Republic of Korea (1.8%), and Malaysia (1.8%).
- On an annual basis, the fastest growing markets were Viet Nam (18.8%), Indonesia (16.3%), the PRC (14.4%), the Philippines (12.5%), and the Republic of Korea (10.4%).
- The region's local currency government bond market expanded 2.1% quarter-on-quarter in 3Q13, up from 1.1% quarterly growth in 2Q13, to level off at $4.4 trillion.
- The most rapidly growing government bond markets on a quarterly basis were the Philippines (4.0%), Indonesia (3.7%), the PRC (2.7%), and the Republic of Korea (1.3%).
Special Section: 2013 AsianBondsOnline Bond Market Liquidity Survey
The 2013 AsianBondsOnline Bond Market Liquidity Survey received 106 responses for the government bond market and 72 responses for the corporate bond market in emerging Asia.
The survey results show that average bid-ask spreads for the region as a whole remained the same between this year and 2012 for government bonds, but narrowed for corporate bonds. The results this year also indicate that transaction sizes are lower for government bonds but higher for corporate bonds.
Turnover ratios for local currency government bonds have decreased in most emerging East Asian markets in 3Q13.
This year's survey identified investor diversity to be the most important structural issue for market participants in the region. This was followed by hedging mechanisms, transaction funding, foreign exchange regulations and transparency, market access and settlement and custody, and tax treatment.
About the Asia Bond Monitor
The Asia Bond Monitor 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 (ASEAN) plus the PRC; Hong Kong,China; and the Republic of Korea.
- Global and Regional Market Developments
- Bond Market Developments in the Third Quarter of 2013
- Policy and Regulatory Developments
- AsianBondsOnline Annual Bond Market Liquidity Survey
- Market Summaries
- People’s Republic of China
- Hong Kong, China
- Republic of Korea
- Viet Nam