Bond yields in emerging East Asia diverged due to market-specific factors, while uncertainty about the coronavirus disease (COVID-19) pandemic and concerns over inflationary pressure led to subdued investor sentiment, according to the latest issue of the Asian Development Bank’s (ADB) Asia Bond Monitor.
Yields on short-term (2-year) government bonds from 28 February to 21 May largely declined on the back of accommodative liquidity conditions. Uneven recovery paths and market-specific economic fundamentals, meanwhile, caused long-term (10-year) government bond yields to diverge across the region. The People’s Republic of China (PRC); Hong Kong, China; Indonesia; and Viet Nam posted declines in yields on both short-term and long-term government bonds, while the Republic of Korea, Malaysia, and the Philippines posted increases.
Emerging East Asia’s local currency bond market expanded to $20.3 trillion at the end of March this year. The bond market growth moderated in the period ended 31 March, slipping to 2.2% from 3.1% in the previous quarter, as governments in the region sought to balance fiscal policy and the private sector remained cautious amid renewed outbreaks and uneven vaccine rollouts.
“Persistent uncertainty surrounding the COVID-19 pandemic and looming inflationary pressure have put a dent in emerging East Asia’s bond markets, leading to volatility and mixed performances in the region’s financial and equity markets,” said ADB Chief Economist Yasuyuki Sawada. “The region’s fast-expanding sustainable bond markets, underpinned by a growing interest in a green and inclusive recovery and conducive public policies, will be key to the region’s efforts to rebuild smarter after the pandemic.”
