Speaking to The Asset on the sidelines of Sibos Hong Kong 2009, Satoru Yamadera, ADB economist for office of regional economic integration, notes that the region’s bond market has been growing rapidly in the recent past and has become an important source of funding for corporates and governments.

 

“Asia is seen as relying largely on banks, which is true; banks still dominate [as the source of finance], but it is changing now as shown by the explosion of bond issuances recently,” he says.

 

Yamadera refutes the argument that Asia still lacks a real bond market, citing the recent growth figures the markets have seen. According to the latest report by Asia Bond Monitor of ADB, emerging East Asia had US$3.94 trillion in local currency bonds outstanding at the end of June, 12.8% more than at the end of the first half of 2008.

 

The growth was particularly notable in the corporate bond market, with corporate bond issuances jumping 90.6% year on year, compared to 38% growth of government bonds.

 

This has come as the governments issued bonds to fund economic stimulus packages to tackle the impact of the global recession, and corporates looked at local markets to raise funds as liquidity in the G3 space dried up.

 

But despite the overall growth, the Asian Bond Monitor report released on September 15 showed the markets remain segmented with some markets like China experiencing immense growth, while others growing slowly or even declining.

 

For example, while economies like China saw rapid development with renminbi bonds outstanding reaching US$2.21 trillion or more than half of the total bonds outstanding in the region, smaller economies in the region recorded slower growth and even declined. This indicates the region still has a lot to do in developing a harmonized market.

 

Yamadera says creating an Asian bond market with a basket of local currencies as the single currency unit invites a lot of political entanglement among the countries. So the strategy for development of the regional bond market will have to be harmonization of the markets, rather than creating a single currency bond market in the region.  

 

He says the ADB is working with Asean+3 finance ministers on the Asian Bond Market Initiative which has four different task forces revolving around bond market issues such as: how to increase bond market investment in the region, harmonization of standards among the markets, and building of bond market infrastructure. Each task force has its own agenda and they will have to come up with concrete measures or at least a complete framework by the next ADB assembly in May, says Yamadera.

 

Emerging East Asian bond markets comprises of markets in China; Hong Kong, China; Indonesia; Republic of Korea; Malaysia; Philippines; Singapore; Thailand; and Vietnam.