Aggressive monetary tightening led to soaring bond yields in East Asia


Bond yields have risen due to aggressive monetary tightening during the period between August 31 to November 4, 2022, in emerging East Asia, as per a recent report by the Asian Development Bank (ADB). East Asia’s regional currencies were outshined by dollar and risk premiums widened, thereby worsening the downturn of financial conditions in the region.

Portfolio outflows were also seen in most regional bond markets. Global inflation, slower growth in the People’s Republic of China (PRC), and economic fallout from the Russian invasion of Ukraine continued to threaten the East Asia’s short-term prospects, according to the November update of Asia Bond Monitor released by ADB.

Bond yields have risen due to aggressive monetary tightening during the period between August 31 to November 4, 2022, in emerging East Asia, as per a recent report by the Asian Development Bank (ADB). East Asia’s regional currencies were outshined by dollar and risk premiums widened, thereby worsening the downturn of financial conditions in the region.

Local currency bond issuance in emerging East Asia shrank 1.1 per cent to $2.2 trillion in the third quarter, compared to the previous quarter, amid softened investment sentiment. Local currency bonds outstanding rose 2.3 per cent to $22 trillion. Emerging East Asia comprises member economies of the Association of Southeast Asian Nations (ASEAN); China; Hong Kong, China; and South Korea.

“Financial conditions in emerging East Asia weakened at a faster pace in September and October than in the first eight months of 2022, due to the aggressive tightening by the US Federal Reserve,” said ADB chief economist Albert Park. “However, the region remains largely resilient so far, despite various headwinds.”

In the third quarter of 2022, the government bond issuance dropped 4.5 per cent from the previous quarter, while corporate bond issuance grew 5.7 per cent, mainly supported by Chinese companies taking advantage of domestic monetary easing measures. Rising interest rates caused a 2 per cent decline in corporate bond issuance in ASEAN markets.

The sustainable bond market in the ASEAN region; China; Hong Kong, China; and South Korea grew 1.7 per cent to $521.6 billion at the end of September 2022. While the growth was slower than in the previous quarter, the segment saw improved diversification in terms of market profile and bond types.

Fibre2Fashion News Desk (DP)




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