Bond yields in most emerging East Asian markets were up between 1 June and 15 August as growth prospects improved in both emerging East Asia and globally, according to the Asian Development Bank’s (ADB) latest Asia Bond Monitor.
“Economies in emerging East Asia continue to grow strongly, while financial risks are receding,” said Yasuyuki Sawada, ADB Chief Economist. “The continued growth of emerging East Asian bond markets is a reflection of prudent policymaking and strong economic fundamentals, which will allow markets to withstand risks related to possible changes to US Federal Reserve policy.”
Sustained growth momentum in advanced economies has also pushed the increase in bond yields in emerging East Asia. Labor market conditions remained firm in the US, while growth figures and forecasts for both the eurozone and Japan continued to strengthen.
Emerging East Asia’s local currency (LCY) bond markets grew by 3.3% in the second quarter, reaching almost $11 trillion as of the end of June, with the region’s overall growth mainly driven by the bond market of the People’s Republic of China (PRC) — the largest LCY bond market in emerging East Asia. Government bonds continued to dominate, accounting for $7.2 trillion or 65.9% of the total regional LCY bond market. Corporate bonds comprised the remaining $3.7 trillion.
The report includes special discussions on the potential benefits of the PRC’s efforts to link its bond market to the rest of the world — called the Bond Connect scheme — and a conceptual solution to cope with longevity risk in Asia. Greater access to the PRC bond market would contribute to regional and global bond market integration, and help satisfy the large and growing demand of global investors for renminbi-denominated assets, especially Treasury bonds.
The report, however, noted that economies in emerging East Asia may face risks in the long term as looming adjustments from the US Federal Reserve may affect global liquidity and asset valuations.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in cofinancing.