By Lee C. Chipongian
The Asian Development Bank (ADB) yesterday said the US and eurozone divergent monetary policies have led to mixed bond yields in the region as central banks here also responded differently to address weakening currencies and high inflation.
“The difference in bond yields reflects disparate monetary policy stances across emerging East Asia amid global economic uncertainty,” ADB Chief Economist Yasuyuki Sawada said in Manila.
“But emerging East Asia still has strong fundamentals, and the current risks posed by financial turbulence in emerging markets such as Argentina and Turkey seem limited for the region,” he added.
“Still, given the febrile state of global financial markets, Asian authorities would do well to monitor developments closely and be prepared to take preventive measures if warranted.”
In a statement Friday, the ADB noted of diverged (with) yields rising in economies that took steps to support local currencies or tackle rising inflation” while yields declined in some countries that took other routes to free up liquidity for the period June 1 to August 15 this year.
Countries with a tighening stance to address their respective currency depreciation and elevated inflation reading included the Philippines, Indonesia, Thailand and Vietnam. The markets that had “yields sliding” in the meantime are the Korea, Malaysia, and China, where the People’s Bank of China lowered the reserve requirement ratios for some banks.
According to the ADB’s latest “Asia Bond Monitor” quarterly update, the “trend occurred amid global uncertainty, as the US continued to raise interest rates and the eurozone is expected to begin monetary tightening, which have contributed to the depreciation of most currencies in emerging East Asia.”
Emerging East Asia are the Philippines, China, Hong Kong, Indonesia, Korea, Malaysia, Singapore, Thailand, and Vietnam. Based on the ADB report, the local currency bond markets in emerging East Asia increased by 3.2 percent quarter-on-quarter to $12.6 trillion as of end-June. About 67 percent of the local currency bond markets are government bonds amounting to $8.4 trillion.
Corporate bonds also went up by 1.8 percent quarter-on-quarter to $4.2 trillion.
China remains the region’s largest bond market with 72 percent of the total bonds outstanding as of end-June, up 3.8 percent from end-March. “The expansion was largely driven by a surge in the issuance of local government bonds as local governments rushed to meet the August deadline of the debt-for-bond swap program,” said ADB.
In the meantime, the net foreign fund flows in the region’s local currency bond markets were mixed in the second quarter as seen in the foreign bond investment in Indonesia and Malaysia which dropped, while Korea and Thailand “enjoyed high foreign investor interest,” said ADB.