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Emerging East Asia Bond Markets Grow 3.4% In Third Quarter

Bond yields rose, currencies weakened, and risk premiums edged up amid increased global inflation and the US Fed’s tighter policy


Bond market
China's bond market grew 12.6% in the third quarter from a year earlier to $1.9 trillion. Photo: Reuters

 

Emerging East Asia’s bond market grew 3.4% in the third quarter to $21.7 trillion, according to the latest Asia Bond Monitor, released on Friday by the Asian Development Bank (ADB).

Bond yields rose, currencies weakened, and risk premiums edged up amid increased global inflation and the US Federal Reserve’s announcement that it would limit bond purchases starting in November, according to the report.

“The encouraging macroeconomic outlook and accommodative policy stances are supporting the region’s financial conditions,” the ADB’s acting chief economist Joseph Zveglich said.

“However, central banks in the region may find they need to be less accommodative to keep inflation in check and to keep in step with US monetary policy changes.”

He said the chance of another “taper tantrum” is limited as the direction of the Fed is more clearly communicated and the region’s economic fundamentals remain strong.

The monitor’s coverage comprises the China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam.

 

Government Bonds Dominate

Government bonds remained the dominant segment, increasing 3.9% from the previous quarter to $13.6 trillion. China’s bond market grew 12.6% in the third quarter from a year earlier to $1.9 trillion, while South Korea posted 7.6% expansion.

The Association of Southeast Asian Nations (ASEAN) members grew 14.4% as ASEAN bond markets showed sound capacity during the pandemic, evident in low bond yields amid rapid market expansion.

Domestic financial institutions, particularly banks, anchored bond market functioning. At the same time, a few ASEAN central banks facilitated market liquidity and government financing via asset purchasing programmes. Mid- and long-term bonds account for a majority of outstanding bonds in ASEAN bond markets, implying a relatively stable financing structure.

Sustainable bond markets in ASEAN plus China, Hong Kong, Japan and South Korea totalled $388.7 billion, remaining the largest regional sustainable bond market after Europe and accounting for 19.2% of global sustainable bond markets at the end of September.

Green, social, and sustainability bonds accounted for 71.6%, 13.0%, and 15.3% of the region’s sustainable bonds outstanding, respectively.

Yield Differential of 10-Year Government Bonds Over 1 Year

  • George Russell

 

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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