Bond yields rise in emerging East Asia amid aggressive monetary tightening

Source: ADB

Regional currencies fell against the US dollar, equities dropped, and risk premiums widened between 31 August and 4 November, according to the latest update of Asia Bond Monitor, released today. Portfolio outflows were also seen in most regional bond markets. Global inflation, slower growth in the People’s Republic of China (PRC), and economic fallout from the Russian invasion of Ukraine continued to threaten the region’s short-term prospects.

“Financial conditions in emerging East Asia weakened at a faster pace in September and October than in the first eight months of 2022, due to the aggressive tightening by the US Federal Reserve,” said ADB Chief Economist Albert Park. “However, the region remains largely resilient so far, despite various headwinds.”

Local currency bond issuance in emerging East Asia contracted 1.1% from the previous quarter to USD2.2 trillion in the third quarter, amid subdued investment sentiment. Local currency bonds outstanding grew 2.3% to USD22 trillion. Emerging East Asia comprises member economies of the Association of Southeast Asian Nations (ASEAN); the PRC; Hong Kong, China; and the Republic of Korea.

Government bond issuance dropped 4.5% from the previous quarter, while corporate bond issuance grew 5.7%, largely supported by Chinese companies taking advantage of domestic monetary easing measures. Rising interest rates drove a 2.0% decline in corporate bond issuance in ASEAN markets.

The sustainable bond market in the ASEAN region plus the PRC; Hong Kong, China; Japan; and the Republic of Korea grew 1.7% to USD521.6 billion at the end of September. While the growth was slower than in the previous quarter, the segment witnessed improved diversification in terms of market profile and bond types.

The latest issue of Asia Bond Monitor features notes on two special topics: the relationship between regional trade integration and regional financial integration, and the promotion of financial stability and resilience to shocks through the development of local currency bond markets.