COVID-19, dimmed global outlook weigh heavily on emerging East Asian bonds: ADB

Source: Xinhua| 2020-03-25 11:50:02|Editor: Xiaoxia
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MANILA, March 25 (Xinhua) -- The COVID-19 pandemic and deepening global economic uncertainty are weighing heavily on local currency bond markets of emerging East Asian economies, according to the latest issue of the Asian Development Bank's (ADB) Asia Bond Monitor released on Wednesday.

"Financial markets in the region are already feeling the brunt of the effects of the COVID-19 pandemic, with foreign investment and sector activities on the downside, coupled with ongoing trade issues," said Yasuyuki Sawada, ADB Chief Economist.

"Efforts to cushion the negative impacts of the pandemic through stimulus packages and monetary measures to support affected households, businesses, and financial markets should continue," Sawada added.

Emerging East Asia comprises the Chinese mainland, China's Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

Apart from emerging East Asia, the report says government bond yields also declined in major advanced economies. It selects European markets between December 31, 2019 and February 29 2020 as an example as investors took a risk-averse approach and local industries lessened activities due to the global health situation.

This resulted in equity market losses in the region, weakened currencies against the U.S. dollar, and widening credit default swap spreads, adds the report.

The report also predicts that market selloffs, which were observed in some regional bond markets in January and February, will likely continue.

Already, the report says that several central banks in emerging East Asia have cut their policy rates to mitigate the economic impact of the COVID-19 pandemic, including the People's Bank of China, Bank of Thailand, Bank Indonesia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank Negara Malaysia, Hong Kong Monetary Authority, and State Bank of Vietnam.

In March, the U.S. Federal Reserve cut rates twice, leaving its interest rates near zero, along with other measures to support financial markets.

According to the report, local currency bonds outstanding in emerging East Asia totaled 16 trillion U.S. dollars at the end of December 2019, up 2.4 percent from September 2019 and 12.5 percent higher than December 2018.

Meanwhile, bond issuance in the region totaled 1.44 trillion U.S. dollars in the fourth quarter of 2019, a 9.5 percent decline from September last year.

The report says the local currency bond markets of South Korea and Malaysia had the highest bonds outstanding-to-gross domestic product ratios in the region, at 130.5 percent and 104.6 percent, respectively.

At the end of December 2019, government bonds totaled 9.8 trillion U.S. dollars, 1.7 percent higher than September 2019.

Corporate bonds, meanwhile, reached 6.2 trillion U.S. dollars on the back of 3.5 percent growth from September last year.

The report also says China's local currency bond market remained the largest in emerging East Asia, accounting for 75.4 percent of the region's total.