Emerging East Asia's local currency bonds outstanding hit US$5.5T at end of Q2, up 7.7% from a year ago, led by Vietnam, Singapore, Malaysia

Cindy Allen

MANILA, Philippines , September 1, 2011 (Associated Press) – The Asian Development Bank said emerging East Asia's local currency bond markets continued to expand in the second quarter of the year, albeit at a slower pace.

ADB's report, Asia Bond Monitor, said corporate bonds rose 4.4 percent to $1.8 trillion in the second quarter, driving growth in the region whose economic expansion is set to outpace much of the rest of the world.

It said emerging East Asia had $5.5 trillion in local currency bonds outstanding at the end of June -- up 7.7 percent from a year ago, and 2.4 percent from the previous quarter. Second quarter growth in 2010 was 18.5 percent year-on-year and 5 percent quarter-on-quarter.

China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam comprise emerging East Asia.

Markets that grew fastest were Vietnam (up 5 percent), Singapore (up 4.3 percent) and Malaysia (up 3.7 percent).

China's market, which earlier propelled the region's expansion, grew 2.7 percent from the previous quarter on account of a modest 1.6 percent rise in government bonds, the report said.

Capital flows to the region remain strong as investors chasing yields are pulled by relatively strong economic fundamentals, interest rate differentials and the potential appreciation of regional currencies, it added.

But government bond yields have fallen in most markets, with some more sharply after Standard and Poor's recent downgrade of the U.S. credit rating.

"The risks to the outlook are tilted to the downside," the report said. "These include several slowdown or contraction in mature economies that might impact exports from the region, destabilizing capital flows, a lack of timely and appropriate policy interventions in mature markets and potential commodity price fluctuations."

Other markets posted the following growth for the second quarter: Hong Kong, 0.5 percent; South Korea, 2.3 percent; Philippines, 3.1 percent; and Thailand, 0.1 percent.

Indonesia's corporate bonds grew 8.9 percent during the quarter, but its local currency bond market overall retreated 1.7 percent because government bonds fell.

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