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    Asia Bond Monitor: March 2011
    Asia Bond Monitor: March 2011
    Asia Bond Monitor: March 2011
    Ebook184 pages1 hour

    Asia Bond Monitor: March 2011

    By Asian Development Bank

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    The Asia Bond Monitor (ABM) reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. The ABM covers the 10 Association of Southeast Asian Nations member countries plus the People's Republic of China; Hong Kong, China; and the Republic of Korea.
    LanguageEnglish
    PublisherAsian Development Bank
    Release dateMar 1, 2011
    ISBN9789290922797
    Asia Bond Monitor: March 2011

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      Book preview

      Asia Bond Monitor - Asian Development Bank

      ASIA BOND MONITOR

      MARCH 2011

      Asian Development Bank

      @ 2011 Asian Development Bank

      All rights reserved. Published 2011.

      Printed in the Philippines.

      Cataloging-In-Publication Data

      ISSN 2219-1526

      ISBN 978-92-9092-279-7

      Publication Stock No. RPS113152

      Asia Bond Monitor—March 2011

      Mandaluyong City, Phil.: Asian Development Bank, 2011.

      1. Regionalism 2. Subregional cooperation 3. Economic development 4. Asia

      I. Asian Development Bank.

      The views expressed in this book are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

      ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

      Use of the term country does not imply any judgment by the authors or ADB as to the legal or other status of any territorial entity. The symbol $ represents the United States dollar unless otherwise indicated. Asia refers only to ADB’s Asian member economies.

      ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgement of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB.

      Asian Development Bank

      6 ADB Avenue, Mandaluyong City

      1550 Metro Manila, Philippines

      Tel +63 2 632 4444

      Fax + 63 2 636 4444

      www.adb.org

      The Asia Bond Monitor (ABM) reviews recent developments in East Asian local currency bond markets along with outlook, risks, and policy challenges. It covers the 10 Association of Southeast Asian Nations (ASEAN) member countries plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea.

      The ABM is a part of the Asia Bond Market Initiative (ABMI), an ASEAN+3 initiative supported by the Asian Development Bank and funded by the Government of Japan.

      Download the ABM at:

      www.asianbondsonline.adb.org/documents/abm_mar_2011.pdf

      How to reach us: Asian Development Bank

      Office of Regional Economic Integration

      6 ADB Avenue, Mandaluyong City

      1550 Metro Manila, Philippines

      Tel +63 2 632 6688

      Fax+63 2 636 2183

      E-mail asianbonds_feedback@adb.org

      The Asia Bond Monitor March 2011 was prepared by ADB’s Office of Regional Economic Integration and does not neces sarily reflect the views of ADB’s Board of Governors or the countries they represent.

      Contents

      Emerging East Asian Local Currency Bond Markets:

      A Regional Update

      Highlights

      • Financial markets have been gripped by potentially destabilizing factors, ranging from rapidly rising food and commodity prices to political uncertainty in the Middle East. At the same time, however, most emerging East Asian economies have continued to grow rapidly.

      • The combination of these factors has led to a steady stream of policy rate hikes in recent months throughout emerging East Asia.

      • Recent developments have had a two-fold effect on the region’s government bond yield curves: both flattening and shifting yield curves upward in most markets. This flattening trend has occurred in spite of continued capital inflows.

      • Total local currency (LCY) bonds outstanding grew by 13.6% year-on-year (y-o-y) to USD5.2 trillion in 4Q10, driven more by corporate bonds (20.3%) than by government bonds (10.8%).

      • The overall y-o-y growth rate of the market in 4Q10 presents a pattern of more balanced growth. The emerging East Asian bond market excluding the People’s Republic of China (ex-PRC) grew 11.6% y-o-y in 4Q10.

      • The PRC’s overall bond market grew 15.1% y-o-y in 4Q10. However, the bond markets of Viet Nam, Malaysia, and Singapore grew even more rapidly at y-o-y rates of 34.2%, 18.9%, and 15.9%. Additionally, Thailand’s growth rate was an impressive 14.4%.

      • The growth of the PRC’s government bond market declined to 10.3% y-o-y in 4Q10 from 15.6% in the previous quarter, while large increases in issuance from the central banks of Malaysia and Thailand limited the decline of the growth rate of the region’s government bond market ex-PRC to 11.8% y-o-y in 4Q10 from 12.5% in 3Q10.

      • The PRC’s corporate bond market grew an impressive 37.2% y-o-y in 4Q10, however, this was exceeded by growth of 41.4% y-o-y in Viet Nam. The corporate bond markets of Singapore (30.9%), Indonesia (29.8%), and the Republic of Korea (11.1%) also exhibited solid growth in 4Q10.

      • Almost all emerging East Asian corporate bond markets share a similar, interesting structure: the top 6–8 companies in each market issue bonds in very large amounts, with the remaining top 30-50 issuers in each market offering much smaller amounts. This results in an asymptotic curve for the distribution of bonds outstanding. This trend is most pronounced in the corporate bond markets of the PRC and Thailand.

      • LCY bond issuance for 2010 as a whole totaled USD3.8 trillion in emerging East Asia, a 10.2% increase over 2009. Issuance in 4Q10 declined by 20.4% y-o-y and 27.6% q-o-q, but this was offset by substantial issuance earlier in 2010.

      • Foreign participation in the region’s LCY bond market continued to expand in 4Q10, as foreign investors hunted for yield and anticipated appreciation of the underlying currencies.

      • G3 currency bond issuance from emerging East Asia in 2010 hit USD87.2 billion in 2010, a 38% increase over issuance of USD63.2 billion in 2009. G3 currency issuance remained robust in the early months of 2011, reaching USD12.3 billion by mid-March.

      • The major risks to the region’s outlook at present are rapidly rising prices for food, oil, and commodities, and the possibility that central banks will continue to raise their policy rates in 2011. The risk on-risk off behavior of the market could add to these risks and the volatility of the outlook.

      Bond Market Developments in the Fourth Quarter of 2010

      Size and Composition

      Total LCY bonds outstanding in emerging East Asia rose by 13.6% y-o-y in 4Q10 to USD5.2 trillion, driven mainly by corporate bonds, which grew 20.3%. Government bonds rose 10.8%.

      ¹

      Emerging East Asia’s local currency (LCY) bond market growth rates for 4Q10 are strong, positive numbers, although they represent a decline from the total market’s year-on-year (y-o-y) growth rates of 17.2% in 3Q10 and 16.2% in 4Q09 (Figure 1). The 4Q10 growth rates do, however, represent a pattern of more broadly-based market growth for emerging East Asia than had been the case in previous quarters.

      Figure 1: Growth of LCY Bond Markets in 3Q10 and 4Q10 (y-o-y %)

      LCY = local currency, y-o-y = year-on-year. Notes:

      1. Calculated using data from national sources.

      2. Growth rates are calculated from local currency base and do not include currency effects.

      3. Emerging East Asia growth figure is based on end-December 2010 currency exchange rates and do not include currency effects.

      4. For Singapore, corporate bonds outstanding quarterly figures are based on AsianBondsOnline estimates.

      Source: People’s Republic of China (ChinaBond); Hong Kong, China (Hong Kong Monetary Authority); Indonesia (Bank Indonesia and Indonesia Stock Exchange); Republic of Korea (Bank of Korea and KoreaBondWeb); Malaysia (Bank Negara Malaysia); Philippines (Bureau of the Treasury and Bloomberg LP); Singapore (Monetary Authority of Singapore, Singapore Government Securities, and Bloomberg LP); Thailand (Bank of Thailand); and Viet Nam (Bloomberg LP).

      The LCY bond market of emerging East Asia excluding the People’s Republic of China (ex-PRC) grew 11.6% y-o-y in 4Q10, compared with 11.7% in 3Q10, while the PRC market’s growth rate of 15.1% in 4Q10 was down from 21.4% in 3Q10. The y-o-y growth rate for the PRC’s government bond market in 4Q10 was 10.3%, or 1.5 percentage points lower than that of the government bond market for emerging East Asia ex-PRC. Large increases in issuance by the central banks of Malaysia and Thailand pushed growth rates for the government bond sector in these markets up to double-digit levels. In the Philippines, new issuance and hugely successful debt exchanges in 4Q10 resulted in y-o-y growth of 10.1% for its government bond market (Table 1).

      Table 1: Size and Composition of LCY Bond Markets

      LCY = local currency, q-o-q = quarter-on-quarter, y-o-y = year-on-year.

      Notes:

      1. For Singapore, corporate bonds outstanding quarterly figures are based on AsianBondsOnline estimates.

      2. Corporate bonds include issues by financial institutions.

      3. Bloomberg LP end-of-period LCY—USD rates are used.

      4. For LCY-base, total emerging East Asia growth figures are based on end-December 2010 currency exchange rates and do not include currency effects.

      Source: People’s Republic of China (ChinaBond); Hong Kong, China (Hong Kong Monetary Authority); Indonesia (Bank Indonesia and Indonesia Stock Exchange); Japan (Japan

      Securities

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