Manila, Philippines (BBN)- Local currency bond markets in emerging East Asia had grown by an annual 18.8 percent as of the end of June, with $4.8 trillion in paper outstanding, Asian Development Bank (ADB) reported.
This large expansion was driven by a 24.4 percent year-on-year growth in the corporate bond market, which has become an increasingly important source of funding for private sector investment.
Emerging East Asian bond markets – comprising those of the People’s Republic of China (PRC); Hong Kong, China; Indonesia; Republic of Korea; Malaysia; Philippines; Singapore; Thailand; and Viet Nam – have also seen strong foreign investment.
High offshore and onshore demand for emerging East Asia’s local currency bonds has reduced the premiums paid on corporate debt over government benchmark bonds and contributed to a flattening in government bond yield curves.
According to the most recent data, foreigners held 27.4 percent of Indonesian government debt, 18.1 percent in Malaysia and 7.4 percent of sovereign debt in Korea. While much of that investment has come from outside Asia, some has also come from within the region.
“Emerging East Asia is experiencing strong foreign portfolio capital inflows as investors chase higher returns in local markets,” Iwan Azis, Head of ADB’s Office of Regional Economic Integration said in a statement on Monday.
Growth in the size of local currency bond markets was led by Hong Kong, China (43.3 percent), Viet Nam (35.8 percent), PRC (22.5 percent), and Thailand (18.4 percent).
The strong growth of the Hong Kong, China market was due mainly to the heavy issuance of Exchange Fund Bills and Notes by the Hong Kong Monetary Authority for monetary policy purposes, the ADB added.
Local currency bond issuance totaled $938 billion in the second quarter, up 6.5 percent on year, but 11.7 percent lower than in the first quarter due to a dip in central bank issuance. Total central bank bill and bond sales fell 25.7 percent quarter-on-quarter due to reduction in sterilization activities.
Meanwhile, emerging East Asia’s sales of bonds denominated in US dollars, euros, and yen are on track to match, if not exceed, the record $63.2 billion of issuance in 2009. In the first half of 2010, sales reached $31.8 billion, with an additional $14.5 billion sold from July to mid-August.
BBN/SI/AD-04Oct10-10:24 am (BST)