Manila, Philippines (BBN)– Emerging East Asia’s local currency bond markets expanded 7.0 percent to $5.7 trillion in 2011, according to the latest edition of the Asian Development Bank’s (ADB) Asia Bond Monitor, released on Thursday.
In 2011, the amount of outstanding government bonds grew by a modest 2.5 percent in local currency terms to $3.8 trillion. The growth rate reflected a drop in bond sales by both governments reining in fiscal stimulus programs 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 percent to $1.9 trillion. This was slower than the growth rates in 2009 or 2010 but much higher than in 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 percent, followed by 26.0 percent growth in the People’s Republic of China (PRC), and 13.4 percent in the Philippines,” the ADB said.
Emerging East Asia’s 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-dated 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 end-2011.
The maturity profiles of most sovereign bond markets improved in the second half of 2011 as governments sold more longer-dated debt. By the end of 2011, for example, Indonesia, the Philippines, Singapore, and the PRC all had more than 20 percent 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, shows bond market conditions, notably return, risks, liquidity and market infrastructure, drive investor decisions on cross-border investments. This suggests ongoing regional collective initiatives and national reforms to develop local and regional market are crucial.
The quarterly Asia Bond Monitor assesses the bond markets of the PRC; Hong Kong, China; Indonesia; Republic of Korea; Malaysia; Philippines; Singapore; Thailand; and Viet Nam.
Last year, the fastest growing markets in the region were those of Viet Nam, Singapore, and Malaysia, which grew by 16.5 percent, 13.1 percent, and 10.4 percent respectively. 
The Philippines, PRC and Indonesia showed the fastest quarter-on-quarter pace of growth in the final three months of 2011. Government bond markets expanded the most rapidly on an annual basis in Viet Nam, Singapore, and Malaysia.
BBN/SSR/AD-26Apr12-11:00 am (BST)