Well-developed bond markets reduce overall risk of banks and improve liquidity positions
Well-developed bond markets reduce overall risk of banks and improve liquidity positions

Emerging east Asia bond market growth steady amid global slowdown

ANI | Updated: Nov 20, 2019 11:43 IST

Manila [Philippines], Nov 20 (ANI): Emerging east Asia's local currency bond market posted steady growth during the third quarter of 2019 despite persistent trade uncertainties and a global economic downturn, according to the latest issue of the Asian Development Bank's (ADB) Asia Bond Monitor released on Wednesday.
"The ongoing trade dispute between China and the United States and a sharper-than-expected economic slowdown in advanced economies and China continue to pose the biggest downside risks to the region's financial stability," said ADB Chief Economist Yasuyuki Sawada.
"However, monetary policy easing in several advanced economies is helping to keep financial conditions stable."
Emerging east Asia comprises China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
Local currency bonds outstanding in emerging East Asia reached 15.2 trillion dollars at the end of September. This was 3.1 per cent higher than at the end of June.
Local currency government bonds outstanding totalled 9.4 trillion dollars, accounting for 61.8 per cent of the total, while the stock of corporate bonds was 5.8 trillion dollars. A total of 1.5 trillion dollars in local currency bonds were issued in the third quarter, up 0.9 per cent versus the previous three months.
China remained emerging east Asia's largest bond market at 11.5 trillion dollars, accounting for 75.4 per cent of emerging east Asia's outstanding bonds. Indonesia had the fastest-growing local currency bond market in the region during the third quarter, boosted by large issuance of treasury bills and bonds.
A special theme chapter examines the relationship between bond market development and the risk-taking behaviour of banks. The analysis finds that well-developed bond markets reduce the overall risk of banks and improve their liquidity positions. This suggests bond market development can contribute to the soundness of the banking system.
An annual liquidity survey in the report shows increased liquidity and trading volumes in most regional local currency bond markets in 2019 versus 2018. It also highlights the need for a well-functioning hedging mechanism and diversified investor base for both government and corporate bonds.