Vietnamese Government bond issuance enables its bond market to post the most rapid expansion in emerging East Asia in the first quarter of 2014. — Photo vietstock.vn

HA NOI (Biz Hub) — Local and offshore demand for emerging East Asia's local currency bonds is rising again and should continue given the strong growth prospects in the region.

This has been stated by the Asian Development Bank's (ADB) latest Asia Bond Monitor.

Emerging East Asia is defined as China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand and Viet Nam.

Despite the recent improvements, the Asia Bond Monitor warns that markets could still be jolted by the ongoing tapering of US quantitative easing policy, the slowdown in economic growth in China, or moved by the European Central Bank to counter the threat of deflation. Only by taking the lead in implementing better regulation and oversight of the financial system can Asia mitigate these risks.

Bond yields – which fall as demand increases – declined in most economies in the first four months of the year, dropping the most in Indonesia, Thailand, and Viet Nam. However, investors in Thai bonds are now on the sidelines and yields could rise going forward. Meanwhile, the yields in the Philippines went up in January through April amid rising inflation.

The markets also continue to grow in size with US$7.6 trillion in bonds outstanding in the nine economies at the end of March, up 2.1 per cent quarter on quarter and 9.5 per cent higher than a year earlier. Viet Nam was the fastest growing market on a quarterly basis, while Indonesia's market grew the fastest on an annual basis.

In Viet Nam, robust government bond issuance enabled its bond market to post the most rapid expansion in emerging East Asia in the first quarter of 2014, growing 23 per cent quarter on quarter and 17.8 per cent year on year to $35 billion, a record high for the country. The government bond market accounted for the entire market growth, expanding 23.9 per cent quarter on quarter and 20 per cent year on year to $35 billion, while the corporate bond market contracted 12.6 per cent quarter on quarter and 43.1 per cent year on year to $600 million.

Thailand had $281 billion in outstanding baht-denominated bonds as of the end of March, 1.2 per cent more than at the end of December 2013 and 5.7 per cent more than at the end of March 2013.

The region also continues to see encouraging developments within the bond markets, the report said. It pointed to the China's recent decision to auction CNH15 billion worth of sovereign bonds in Hong Kong, China, as part of its efforts to internationalise the renminbi. The recent decision to allow Chinese municipalities to sell bonds provides an additional set of instruments for investors. Among other developments, South Korea lifted the final hurdle to the issuance of covered bonds; Singapore launched the clearing of non-deliverable interest rate swaps; and Hong Kong continued to promote the local understanding of sukuk (Arabic name for financial certificates, but commonly referred to as the Islamic equivalent of bonds). — VNS