Emerging East Asia’s local currency bond markets expanded 7.0% to $5.7 trillion in 2011, driven by double-digit growth in the region’s corporate bond markets, according to the latest edition of the ADB’s Asia Bond Monitor.
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In 2011, the amount of outstanding government bonds grew by a modest 2.5% in local currency terms to $3.8 trillion. The growth rate reflected a drop in bond sales by both governments reigning in fiscal stimulus programmes and by monetary authorities curtailing issuance in the early part of the year.
Meanwhile, outstanding bonds sold by banks and companies expanded by 17.1% to $1.9 trillion. This was slower than the growth rates of 2009 or 2010, but much higher than the middle of the last decade. The pace of corporate issuance accelerated in early 2012, suggesting a swift pace of growth this year too. Indonesia’s corporate bond markets grew the fastest, at 28.0%, followed by 26.0% growth in China, and 13.4% in the Philippines.
East Asia’s emerging contractual savings institutions – pension funds, insurance companies, and social securities institutions – have become increasingly important buyers of the region’s corporate bonds. Their demand is also set to increase as they seek higher returns and longer-term investments than are available from government bonds.
Foreign interest in the region’s local currency bonds remained strong in most markets in 2011, although foreign holdings in Indonesia, which has the highest level of foreign holdings in the region, leveled off at the end of 2011.
The maturity profiles of most sovereign bond markets improved in the second half of 2011, as governments sold more long-term debts. By the end of 2011, for example, Indonesia, the Philippines, Singapore, and China all had more than 20% of outstanding bonds in maturities of 10 years or more. Countries with a greater concentration of longer-dated debt are less vulnerable to liquidity crunches, although there are few such concerns at this time.
However, cross-border portfolio debt holdings in Asia remain low, although they have improved in recent years.
A survey of 78 investors and analysis of secondary data, also included in the report, showed bond market conditions, notably return, risks, liquidity and market infrastructure, drive investor decisions on cross-border investments, which suggested that ongoing regional collective initiatives and national reforms to develop local and regional market remain crucial.
Asia Bond Monitor assesses the bond markets in China, Hong Kong, Indonesia, Republic of Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam.
In 2011, Vietnam’s bond market expanded by 16.5%, the fastest rate in the region. At $17 billion, the market was still one of the smallest in the region, with the government bond market much larger than the corporate market at $15 billion versus $2 billion. Gross issuance of government debt last year rose by 9.7% while corporate sales fell by 94.2%.
Among key developments in the local bond market last year, the Vietnam Bond Market Association assigned market maker status to eight banks beginning in January, a move that was meant to boost market volume, liquidity, and transparency.
Last year, the fastest growing markets in the region were Vietnam, Singapore, and Malaysia, which grew by 16.5%, 13.1%, and 10.4% respectively. The Philippines, China and Indonesia showed the fastest quarter-on-quarter pace of growth in the final three months. Government bond markets expanded the most rapidly on an annual basis in Vietnam, Singapore, and Malaysia.
