Economic lift from covid vaccine drive boosts bond yields in Emerging East asia

IMPROVED global economic prospects due to progress in Covid-19 vaccinations have improved bond yields in emerging East Asia, according to the Asian Development Bank (ADB).

In its Asia Bond Monitor, the ADB said local currency bond markets in the region expanded to $20.1 trillion at the end of 2020.

“Bond markets in emerging East Asia continued to grow, mobilizing funding for the region’s sustainable recovery from the pandemic, ”said ADB Chief Economist Yasuyuki Sawada. “Successful vaccination campaigns, accommodative monetary policy stances, and easing of restrictions are spurring economic activity and shifting the recovery into higher gear.”

In the Philippines, ADB said the country’s local currency (LCY) bond market grew 5.3 percent quarteron-quarter (q-o-q) and 28.9 percent year-on-year to reach P8.568 trillion or $178.4 billion at the end of December 2020.

Government bonds outstanding reached P6.956 trillion at the end of the fourth quarter of 2020, rising 7 percent q-o-q. Outstanding corporate bonds fell 1.3 percent q-o-q to P1.612 trillion due to debt maturities and declining issuance in the fourth quarter of 2020 compared with the previous quarter.

“Government and corporate bonds comprised 81.2 percent and 18.8 percent, respectively, of the LCY bond market at the end of December 2020,” ADB said.

ADB said vaccine rollouts have started in most markets in the region and lifted investor confidence. However, the uncertainty of the pandemic’s trajectory, particularly with regard to new variants and a possible resurgence in cases, continues to weigh on the development outlook.

Further, ADB said uneven vaccine access and a potential adjustment in asset prices due to an escalation of long-term interest rates also pose risks.

Emerging East Asia’s local currency bond market reached $20.1 trillion at the end of December 2020, 3.1 percent higher than the preceding quarter and 18.1 percent higher than a year earlier.

The size of the bond market grew to the equivalent of 97.7 percent of the region’s gross domestic product at the end of the fourth quarter of 2020. Local currency bond issuance stood at $2 trillion.

Government bonds dominated the region’s bond stock at $12.4 trillion as of the end of December, while corporate bonds amounted to $7.7 trillion.

The latest issue of the Asia Bond Monitor features a box highlighting differences between corporate bond markets in East Asia and Latin America, and how they relate to financial resilience.

The report also includes three special sections— one on environmental, social, and governance (ESG) bonds in the Asean+3 markets; another on recent developments for social bonds; and a third on the results of Asian bonds online 2020’s annual bond market liquidity survey.