MANILA, June 29 (Xinhua) -- Bond yields in most emerging East Asian markets trended upward between March 1 and May 31 on the back of an expanding global economy and ongoing U.S. monetary policy normalization, according to a new report by the Asian Development Bank (ADB) released on Friday.
The latest issue of the Asia Bond Monitor reports that government bond yields in most emerging East Asian markets rose during the review period.
"Emerging East Asia's bond yields are trending up and the economic outlook remains positive," ADB chief economist Yasuyuki Sawada said.
He said that "countries in the region are well-placed to withstand external headwinds, including the general appreciation of the U.S. dollar associated with the strong growth momentum of the U.S. economy and the Federal Reserve's interest rate hikes."
The report said that local currency bond markets in emerging East Asia continued to grow in the first quarter of 2018, albeit moderately at 1.1 percent quarter-on-quarter (q-o-q) growth, to reach 12.8 trillion U.S. dollars.
It said the local currency government bond market comprised 66.9 percent of the region's aggregate bonds outstanding, reaching 8.5 trillion U.S. dollars, adding that corporate bonds remained stable, growing 0.5 percent q-o-q to 4.2 trillion U.S. dollars.
The report said that bond market expansion moderated in China, which remains the region's largest bond market with a 71.5 percent share of total bonds outstanding.
"Growth was just 0.7 percent q-o-q in the first quarter of 2018 compared to the previous quarter's 4.0 percent q-o-q. This is mainly due to (Chinese) government's ongoing efforts to reduce credit risk," the report said.
The report meanwhile said that net foreign bond investment in emerging East Asia slowed down in the first four months of 2018, as investors gradually reduced their exposure to the region's local currency bond market due to higher U.S. interest rates.
Some of the risks to emerging East Asia's bond market identified by the report include faster than expected U.S. monetary policy normalization, tighter global liquidity conditions, trade tensions and currency weakness.
"High levels of corporate and household debt in some Asian economies can exacerbate the risk from higher U.S. interest rates," the report said.
The latest Asia Bond Monitor includes a special theme chapter on the role of greenness measures in the development of markets for green bonds or fixed income securities that exclusively fund projects with environmental or climate-related benefits.
Having a well-defined greenness measure can foster the further development of the green bond market, which, in turn, can help fund investment projects that benefit climate resilience and environmental sustainability, it added.
