Manila: Growth in emerging East Asia’s local currency bond market slowed to 3.1% in the first three months of the year amid weakened financial conditions and global economic headwinds, according to a report by the Asian Development Bank (ADB).
Issuance fell 6.5% from the previous quarter, while rising inflationary pressure and tightening financial conditions pushed up bond yields in economies in the region, according to the latest issue of Asia Bond Monitor, released today.
Financial conditions in emerging East Asia softened between 28 February and 9 June, evidenced by falling stock prices, portfolio outflows, and the weakening of currencies against the US dollar. The trend was largely driven by monetary tightening by central banks in major advanced economies and several regional economies, and by heightened risks to economic outlooks. These risks include continued inflation, rising commodity prices, slower-than-expected growth in the People’s Republic of China (PRC), and larger-than-expected impacts of the Russian invasion of Ukraine.
"Monetary stances in emerging East Asia remain largely accommodative, but persistent inflationary pressure and accelerated monetary tightening by the US Federal Reserve could lead to further monetary tightening in the region," said ADB Chief Economist Albert Park in a press release on Monday.
"The region’s economies will continue to recover, but growth could moderate this year," Park added.
Emerging East Asia includes the PRC; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.
The region’s local currency bond market reached $23.5 trillion at the end of March. Bonds outstanding in economies belonging to the Association of Southeast Asian Nations (ASEAN) totaled $2.0 trillion, accounting for 8.6% of emerging East Asia’s total bond stock.
Government bonds outstanding grew to $14.7 trillion. Issuance contracted 2.2% from the previous quarter, as authorities tried to balance economic recovery efforts with fiscal sustainability. Issuance of corporate bonds declined by 12.1% from previous quarter amid tighter financial conditions and economic uncertainties. Nevertheless, sustainable bonds in the ASEAN region plus the PRC; Hong Kong, China; Japan; and the Republic of Korea continued to grow solidly, expanding 9.7% to $478.7 billion.