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Improved Outlook, Vaccine Progress Lift Emerging East Asian Bond Markets

An improving global economic outlook and progress on coronavirus disease (COVID-19) vaccinations have pushed up bond yields in emerging East Asia. Local currency bond markets in the region expanded to $20.1 trillion by the end of 2020, according to the latest issue of the Asian Development Bank’s (ADB) Asia Bond Monitor. Investor sentiment and financial conditions also improved.

“Bond markets in emerging East Asia continued to grow, mobilizing funding for the region’s sustainable recovery from the pandemic,” said ADB Chief Economist Yasuyuki Sawada. “Successful vaccination campaigns, accommodative monetary policy stances, and easing of restrictions are spurring economic activity and shifting the recovery into higher gear.”

Emerging East Asia comprises the People’s Republic of China (PRC); Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.

Vaccine rollouts have started in most markets in the region, lifting confidence, according to the report. At the same time, the uncertainty of the pandemic’s trajectory, particularly with regard to new variants and a possible resurgence in cases, continue to weigh on the development outlook. Uneven vaccine access and a potential adjustment in asset prices due to an escalation of long-term interest rates also pose risks.

Government bond yields in most advanced economies and emerging East Asian markets increased between 31 December 2020 and 15 February 2021. Meanwhile, improved sentiment boosted most equity markets and regional currencies. Capital flows into the region’s equity and bond markets also recovered in the last quarter of 2020.

Emerging East Asia’s local currency bond market reached $20.1 trillion at the end of December 2020, 3.1% higher than the preceding quarter and 18.1% higher than a year earlier. The size of the bond market grew to the equivalent of 97.7% of the region’s gross domestic product at the end of the fourth quarter of 2020. Local currency bond issuance stood at $2 trillion.

Government bonds dominated the region’s bond stock at $12.4 trillion as of the end of December, while corporate bonds amounted to $7.7 trillion. The PRC remained the region’s largest bond market, accounting for 77.4% of emerging East Asia’s total bond stock.

The latest issue of the Asia Bond Monitor features a box highlighting differences between corporate bond markets in East Asia and Latin America, and how they relate to financial resilience. The report also includes three special sections—one on environmental, social, and governance (ESG) bonds in the ASEAN+3 markets; another on recent developments for social bonds; and a third on the results of AsianBondsOnline 2020’s annual bond market liquidity survey.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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