Corporates drive Asia's local currency bond market

“We should see further growth in the bond markets, given the region’s economies are continuing to expand and with foreign and domestic investors increasingly comfortable with Asian local-currency debt,” said Iwan J Azis, head of the ADB’s Office of Regional Economic Integration. “Governments and companies are also much better now at managing their debt than they were a decade ago.”

The ADB’s quarterly monitor assesses the bond markets of Thailand, mainland China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore and Vietnam.

The region’s local-currency bond markets now constitute a larger portion of their economies than they did three months or even a year ago, at 54.8 per cent of gross domestic product at the end of March, versus 54.6 per cent at the end of December and 52.8 per cent at the end of March last year.

The region’s corporate bond market expanded 19.5 per cent year on year and 4.6 per cent quarter on quarter to $2.4 trillion at the end of March. 

Meanwhile, the government bond market grew at a more modest annual pace of 8.3 per cent and a quarterly rate of 2 per cent, to $4.3 trillion.

Indonesia had the fastest-growing corporate bond market in the region during the first quarter, expanding 26.9 per cent year on year to $20 billion, followed by mainland China, which had the region’s largest corporate bond market at $1.1 trillion, up 25.3 per cent from the same period last year.

Vietnam registered the most rapid year-on-year growth in the government bond market, posting a 64.6-per-cent expansion to $29 billion, fuelled by heavy issuance of treasury, central bank and state-owned enterprise bonds. 

In contrast, the country’s corporate bond market shrank 47.2 per cent to $1 billion.

Foreign holdings of most emerging East Asian local-currency government bonds continued to rise in the first quarter, with yields in the region still more attractive than those in the United States and many European markets and on the perception that Asian credit quality is on a par with, if not better than, in advanced economies, said the report.

Foreign holdings accounted for 32.6 per cent of Indonesian local-currency government bonds as of end-March, the largest among emerging East Asian economies. Malaysia followed closely, with foreign holdings reaching 31.2 per cent.

Yields on most government bonds have been trending lower since the end of last year in the region as inflation moderates and with policy interest rates largely unchanged, the ADB report said.

The only exceptions are Hong Kong, Indonesia and Singapore, where government bond yields have risen for most maturities since the beginning of the year because of inflationary concerns.