Bond yields in emerging East Asia rise amid prolonged high interest rate expectations
Bond yields in emerging East Asia have increased due to heightened expectations that interest rates will remain elevated for an extended period, according to a new report by the Asian Development Bank (ADB).
- The latest edition of Asia Bond Monitor (ABM), released today, reports that bond outflows from regional markets reached $20 billion in March and April. Slower-than-expected disinflation has reinforced the likelihood of prolonged higher interest rates, leading to increased short-term and long-term bonds yields in both advanced economies and regional markets.
Regional currencies depreciated against the US dollar, and credit default swap spreads widened in most markets. While most regional equity markets posted gains due to a positive economic outlook, equity markets in the Association of Southeast Asian Nations (ASEAN) saw outflows of $4.7 billion.
“Emerging East Asia’s financial conditions remain resilient,” said ADB Chief Economist Albert Park. “However, ongoing geopolitical tensions and adverse climate events pose upward risks to inflation, adding uncertainty to the disinflation path. Some regional monetary authorities may maintain higher interest rates for a longer period to protect currencies amid uncertainties in disinflation trends and global monetary policies.”
Emerging East Asia includes ASEAN member economies, the People’s Republic of China (PRC), Hong Kong, China, and the Republic of Korea (ROK). The local currency security market in this region grew at a slower pace in the first quarter of 2024, expanding by 1.4% to reach $24.7 trillion. Contractions in government bond issuances in the PRC and Hong Kong tempered overall market growth, though the corporate segment grew, supported by robust issuance in these two economies, with the PRC government implementing measures to boost the domestic economy.
High interest rates also impacted sustainable security markets in ASEAN, the PRC, Japan, and the ROK (ASEAN+3), leading to a contraction in sustainable security issuance in the first quarter of 2024. This market reached $805.9 billion by the end of March.
Despite the challenges, this market remains the world’s second-largest sustainable security market, holding an 18.9% global share, behind the European Union’s 37.6%. However, sustainable bonds account for only 2.1% of ASEAN+3’s total bond market, compared to 7.3% in the European Union.
ADB is dedicated to fostering a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while continuing its efforts to eradicate extreme poverty. Established in 1966, ADB is owned by 68 members, 49 of whom are from the region.
