Improved outlook, vaccine progress lift emerging east Asian bond markets

An improving global economic outlook and progress on coronavirus disease vaccinations have pushed up bond yields in emerging east Asia

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 dollars by the end of 2020, according to the latest issue of Asian Development Bank's (ADB's) bond monitor. Investor sentiment and financial conditions also improved.

"Bond markets in emerging east Asia continued to grow, mobilising 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 China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Vaccine rollouts have started in most markets in the region, lifting confidence, according to the report. At the same time, uncertainty of 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 December 31, 2020 and February 15, 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 dollars at the end of December 2020, 3.1 per cent higher than the preceding quarter and 18.1 per cent higher than a year earlier.

The size of the bond market grew to equivalent of 97.7 per cent of region's gross domestic product at the end of fourth quarter of 2020. Local currency bond issuance stood at 2 trillion dollars.

Government bonds dominated the region's bond stock at 12.4 trillion dollars as of December-end while corporate bonds amounted to 7.7 trillion dollars. China remained the region's largest bond market, accounting for 77.4 per cent of emerging east Asia's total bond stock.