ADB – Asia Bond Monitor, June 2024

Financial conditions in emerging East Asia weakened between March and May due to a delay in the expected rate cut by the US Federal Reserve, leading to higher bond yields and outflows from regional markets. Regional currencies depreciated against the US dollar, credit default swap spreads widened, and ASEAN equity markets saw outflows. Uncertainties in US monetary policy could contribute to further outflows and currency weakness. Geopolitical risks, trade tensions, and adverse weather events could add inflationary pressure. In terms of the local currency bond market, it expanded by 1.4% in Q1 2024, reaching USD24.7 trillion. The slower growth was mainly due to contractions in government bond issuance in China and Hong Kong. Corporate bond issuance also declined, with ASEAN markets accounting for 8.9% of the total. Treasury bonds in emerging East Asia were mainly held by banks and insurance and pension funds, with Indonesia and South Korea having the most diversified investor profiles.