Asia Bond Monitor - September 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 examines the spillover effects of the global financial crisis on LCY debt markets.
The economies of emerging East Asia face a weakened external environment and an increasingly uncertain regional outlook. Uncertainty over policy actions and institutional reforms to resolve the sovereign debt crisis in Europe and mixed data signals from the United States (US) have kept investors on edge. Worries about a larger-than-expected slowdown in the People’s Republic of China (PRC) have added to the fears of sharply lower growth in the region.
Some of the highlights in this issue of Asia Bond Monitor include:
- These developments, along with softening external demand, have strengthened the case for regional economies to adopt countercyclical measures to boost domestic demand and investment, including increased issuance of government bonds.
- Hints of further stimulus measures in mature markets if conditions warrant have sparked fears of fresh capital inflows into emerging East Asian capital markets.
- Despite the heightened risk and volatility in global markets, emerging East Asia’s local currency (LCY) bond markets made impressive gains in the first half of 2012. Total bonds outstanding rose 1.9% quarter-on-quarter (q-o-q) and 8.6% year-on-year (y-o-y) to reach US$5.9 trillion at end-June. The q-o-q growth of corporate bonds at 3.1% outpaced the 1.3% growth in government debt.
- Most of the region’s LCY government bond yield curves shifted downward in the first half of 2012. But yields edged up in July–August for all tenors in the PRC, Indonesia, and Viet Nam, and for most tenors in Malaysia; Singapore; Thailand; and Hong Kong, China as uncertainty in financial markets and the real sector deepened.
- Foreign holdings of local government bonds leveled off in Indonesia in the first half of 2012, but increased in Malaysia and Thailand. Meanwhile, foreign fund inflows into government securities in the Republic of Korea have been volatile in recent months.
- The risks to the region’s LCY bond markets include (i) additional stimulus measures leading to increased government bond issuance, (ii) volatile capital flows, and (iii) worsening investor sentiment as the global economic outlook dims.
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.
- Introduction: Global and Regional Market Developments
- Bond Market Developments in the Second Quarter of 2012
- Policy and Regulatory Developments
- Threat of Financial Contagion is Real: Analyzing the Shock and Volatility Spillovers from the Global Financial Crisis
- Market Summaries