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ASIA  BONDMONITOR    APRIL 2012
ASIA  BONDMONITOR   APRIL 2012
© 2012 Asian Development BankAll rights reserved. Published 2012.Printed in the Philippines.ISSN 2219-1518 (Print), 2219-1...
ContentsEmerging East Asian Local CurrencyBond Markets: A Regional UpdateHighlights   2Introduction: Global and Regional M...
DRAFT-UNDER EMBARGO  Emerging East Asian Local Currency Bond Markets—A Regional UpdateEmerging East AsianLocal Currency Bo...
Asia Bond MonitorHighlights•	 The external environment facing emerging                                         of rising e...
Emerging East Asian Local Currency Bond Markets—A Regional Update   end-December 2010. In the case of Indonesia,          ...
Introduction: Global and RegionalAsia Bond MonitorMarket DevelopmentsThe external environment facing emerging East        ...
Emerging East Asian Local Currency Bond Markets—A Regional Updatereduced the risk of a liquidity crunch in the short-run, ...
Asia Bond Monitor    Figure A: Credit Default Swap Spreadsa, b                                                            ...
Emerging East Asian Local Currency Bond Markets—A Regional Update                                                         ...
Bond Market DevelopmentsAsia Bond Monitorin the Fourth Quarter of 2011Size and Composition                                ...
Emerging East Asian Local Currency Bond Markets—A Regional UpdateTable 1: Size and Composition of LCY Bond Markets        ...
Asia Bond Monitorq-o-q growth rates of 0.4%, 0.8%, –1.2%, and                                                       Figure...
Emerging East Asian Local Currency Bond Markets—A Regional UpdateRepublic of Korea (12.1%). The 4Q11 outcome for        is...
Asia Bond Monitorweakness of the emerging East Asian corporate                           from Moody’s, BB+ (stable) from S...
Emerging East Asian Local Currency Bond Markets—A Regional Updatethe Republic of Korea have seen the most rapid           ...
Asia Bond Monitorand contractual savings funds held around 20%                                                      Figure...
Emerging East Asian Local Currency Bond Markets—A Regional UpdateTable 2a: Total Corporate Bonds Held by Contractual Savin...
Asia Bond Monitor                                                                            Table 3: Size and Composition...
Asia bond monitor
Asia bond monitor
Asia bond monitor
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Asia bond monitor
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Asia bond monitor
Asia bond monitor
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Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
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Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
Asia bond monitor
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Asia bond monitor

  1. 1. ASIA BONDMONITOR APRIL 2012
  2. 2. ASIA BONDMONITOR APRIL 2012
  3. 3. © 2012 Asian Development BankAll rights reserved. Published 2012.Printed in the Philippines.ISSN 2219-1518 (Print), 2219-1526 (PDF)ISBN 978-92-9092-668-9 (Print), 978-92-9092-669-6 (PDF)Publication Stock No. RPS124605Cataloging-In-Publication DataAsian Development Bank. Asia Bond Monitor—April 2012.Mandaluyong City, Philippines: Asian Development Bank, 2012.1. Regionalism. 2. Subregional cooperation. 3. Economic development. 4. Asia.I. Asian Development Bank.The views expressed in this publication are those of the authors and do not necessarily reflect the viewsand policies of the Asian Development Bank (ADB) or its Board of Governors or the governments theyrepresent.ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibilityfor any consequence of their use.Use of the term “country” does not imply any judgment by the authors or ADB as to the legal or otherstatus of any territorial entity. “Asia” refers only to ADB’s Asian member economies.ADB encourages printing or copying information exclusively for personal and noncommercial use withproper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivativeworks for commercial purposes without the express, written consent of ADB.Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, PhilippinesTel +63 2 632 4444Fax +63 2 636 4444www.adb.org Printed on recycled paper. The Asia Bond Monitor (ABM) reviews recent How to reach us: developments in East Asian local currency bond Asian Development Bank markets along with outlook, risks, and policy Office of Regional Economic Integration challenges. It covers the 10 members of the 6 ADB Avenue, Mandaluyong City Association of Southeast Asian Nations (ASEAN) 1550 Metro Manila, Philippines plus the People’s Republic of China; Hong Kong, Tel +63 2 632 6688 China; and the Republic of Korea. Fax +63 2 636 2183 E-mail: asianbonds_feedback@adb.org The ABM is a part of the Asia Bond Market Initiative (ABMI), an ASEAN+3 initiative The Asia Bond Monitor April 2012 was prepared supported by the Asian Development Bank and by ADB’s Office of Regional Economic Integration funded by the Government of Japan. and does not neces­ arily reflect the views of s ADBs Board of Governors or the countries Download the ABM at they represent. http://www.asianbondsonline.adb.org/ documents/abm_apr_2012.pdf
  4. 4. ContentsEmerging East Asian Local CurrencyBond Markets: A Regional UpdateHighlights 2Introduction: Global and Regional Market Developments 4Bond Market Developments in the Fourth Quarter of 2011 8Policy and Regulatory Developments 37Intraregional Portfolio Debt Investment 41Market Summaries 52People’s Republic of China—Update 52Hong Kong, China—Update 60Indonesia—Update 63Republic of Korea—Update 72Malaysia—Update 79Philippines—Update 85Singapore—Update 92Thailand—Update 96Viet Nam—Update 101
  5. 5. DRAFT-UNDER EMBARGO Emerging East Asian Local Currency Bond Markets—A Regional UpdateEmerging East AsianLocal Currency BondMarkets:A Regional Update 1
  6. 6. Asia Bond MonitorHighlights• The external environment facing emerging of rising energy prices. Monetary policy has East Asia remains challenging as the eurozone remained neutral in most emerging East Asian sovereign debt crisis lingers, while volatility in markets, but authorities are closely monitoring the financial markets reflects concerns over the the impact of rising energy prices on their sustainability of the economic recovery in the respective inflation indices. United States (US).1 • Most government bond yield curves flattened• The rally in US and emerging market equities significantly in 2011, particularly in Hong Kong, witnessed in 1Q12 has consolidated somewhat China; Indonesia; the Republic of Korea; since the beginning of April as markets Malaysia; the Philippines; and Singapore. turn their focus to challenges facing Spain, Portugal, and other peripheral economies in • Government bond yield curves in most the eurozone. markets either continued to flatten or shifted downward in 1Q12. However, yield curves• Growth in most emerging East Asian in some markets, most notably the People’s economies is expected to remain robust Republic of China (PRC) and Thailand, this year, driven by domestic demand and have shifted upward since the beginning of reconstruction activities, as Japan and Thailand the year. recover from last year’s natural disasters and supply disruptions. The expansion • Total bonds outstanding in emerging East of government spending in several other Asia’s LCY bond market grew 7.0% year-on- emerging East Asian countries should also year (y-o-y) in 4Q11, up from 5.7% growth support domestic growth. in 3Q11. The government bond market grew a modest 2.5% y-o-y in 4Q11, while the• The continuation of accommodative monetary corporate segment of the region’s bond market policies by the US Federal Reserve and grew at a much more robust rate of 17.1%, similar postures adopted in other developed following 14.8% growth in 3Q11. economies have sent large volumes of capital into Asian equity and local currency (LCY) • Contractual savings institutions (CSIs)— bond markets. pension funds, insurance companies, and social security institutions—have become an• The inflows to emerging East Asia’s LCY bond increasingly important investor class in the markets—spurred by interest rate differentials emerging East Asian bond market in recent and easy money conditions in mature markets— years. In the PRC, Malaysia, and the Republic are expected to exert downward pressure on of Korea, CSI holdings of corporate bonds have domestic yields. This trend could accelerate become a key factor supporting corporate bond in 2012 in anticipation of the appreciation of market growth. domestic currencies. • Foreign investors’ interest in the region’s LCY• Inflation may come under renewed pressure government bond market remains strong. over the next several months on the back The Republic of Korea, Malaysia, and Thailand experienced an increase in the share of foreign1 Emerging East Asia comprises the People’s Republic of China (PRC); holdings of their respective LCY governmentHong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines;Singapore; Thailand; and Viet Nam. bonds at end-December 2011 compared with2
  7. 7. Emerging East Asian Local Currency Bond Markets—A Regional Update end-December 2010. In the case of Indonesia, bias for investing in global markets vis-à-vis the share of foreign holdings leveled off regional markets. However, after the GFC at end-2011 after having risen sharply in they remain indifferent between global and recent years. regional markets.• G3 currency issuance in emerging East Asia • A survey of 78 investors and analysis of fell 14.0% y-o-y in 2011 to US$75 billion, secondary data through gravity models show although issuance in G3 currencies rebounded that bond market conditions—namely return, strongly in 1Q12. risks, liquidity, and market infrastructure— are important determinants of cross-border• Downside risks to the outlook for emerging holdings. East Asia remain, including (i) a worsening external environment if the eurozone • Increasing overall return remains the primary economies sink into a deeper recession, motivation of Asian investors. Cross-border (ii)  tighter monetary policies on the back of investor holdings of debt assets respond rising inflationary pressures, and (iii) volatile positively to two components of portfolio capital flows. returns: the return on assets and the return stemming from exchange rate gains.• Cross-border portfolio debt holdings in Asia remain low, although they have improved in • The survey’s results show support for initiatives recent years. Analysis shows a strong home that focus on the development of local and bias among investors. Prior to the global regional financial markets, and encourage financial crisis (GFC), investors had a clear Asians to invest in each other’s markets. 3
  8. 8. Introduction: Global and RegionalAsia Bond MonitorMarket DevelopmentsThe external environment facing emerging East crisis and some signs of US economic recovery,Asia remains challenging as the eurozone sovereign soothed market sentiments in the first quarter ofdebt crisis lingers and markets reflect concerns the year. However, the rally in risk assets in 1Q12over the sustainability of the economic recovery in (Table A), with US equities and emerging marketthe United States (US).2 equities and bonds posting strong performances, appears to be moving into a consolidation phaseMassive liquidity injections in December and as markets turn their focus to challenges in Spain,February into the European banking system from Portugal, and other peripheral economies in thethe European Central Bank (ECB), through its eurozone.Long-Term Refinancing Operations (LTRO), helpedease pressure on short-term rollovers. These While the second international bailout of Greece inefforts, along with the resolution of the Greek debt March may have prevented a disorderly default and Table A: Changes in Global Financial Conditions, 1 January to 15 March 2012 2-Year 10-Year 5-Year Credit Equity Index FX Rate Government Government Default Swap (%) (%) Bond (bps) Bond (bps) Spread (bps) Major Advanced Economies   United States 12 40 – 11.5 –   United Kingdom 14 14 (33) 6.6 1.1   Japan (2) (2) (34) 21.1 8.7   Germany 14 14 (29) 18.7 0.9 Emerging East Asia   China, Peoples Rep. of 12 12 (36) 7.9 0.5   Hong Kong, China (9) (2) (27) 15.8 (0.1)   Indonesia (39) (1) (54) 5.7 1.2   Korea, Rep. of 15 16 (39) 3.2 (2.1)   Malaysia 17 (10) (45) 15.1 (3.5)   Philippines 68 15 (18) 14.3 (1.8)   Singapore (10) 12 (52) 11.9 (2.6)   Thailand 9 49 (0.02) 14.2 (2.6)   Viet Nam (105) (113) – 25.7 (1.0) Select European Markets   Greece 4,179 (957) 26,799 10.3 0.9   Ireland (341) (146) (110) 14.5 0.9   Italy (302) (192) (123) 12.6 0.9   Portugal (9) 36 172 1.8 0.9   Spain (115) (17) 23 (1.6) 0.9 – = not available, bps = basis points, FX = foreign exchange. Notes: 1. For emerging East Asia, positive value for FX rate means depreciation of local currency against US dollar. 2. For European markets, positive value for FX rate means appreciation of local currency against US dollar. Source: Bloomberg LP, CEIC, Institute of International Finance (IIF), and Thomson Reuters.2 Emerging East Asia comprises the People’s Republic of China (PRC);Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines;Singapore; Thailand; and Viet Nam.4
  9. 9. Emerging East Asian Local Currency Bond Markets—A Regional Updatereduced the risk of a liquidity crunch in the short-run, commodity prices (Figure F). Monetary authoritiessovereign debt problems in other larger economies in emerging East Asia have largely adopted aremain unresolved and will likely contribute to a neutral stance as uncertainty deepens over globalnew round of financial market instability. Thus, economic prospects and countries brace for themarket participants have grown more cautious potential fallout from slowing external trade andrecently as they perceive that the short-term, the transmission of volatility through financialliquidity-driven market recovery may have run its market channels.course, while severe fiscal austerity measures inSpain and Portugal could worsen growth prospects The continuation of accommodative monetaryand impinge on debt sustainability. policies by the US Federal Reserve and similar postures adopted in other developed markets haveCredit default swap (CDS) spreads in emerging sent large volumes of capital into Asian equityEast Asia (Figure A) and most countries in the and local currency (LCY) bond markets. Theseeurozone (Figure B) fell at the start of 2012 as policies have also led to strong demand for Asianefforts to manage the eurozone debt crisis began G3 currency bonds.showing promise. However, low investor demandfor Spanish debt at its April auction renewed The renewal of portfolio inflows in 1Q12 reversedconcerns and drove CDS spreads higher in the first the trend of capital outflows, particularly fromhalf of the month. the region’s equity markets, that emerged in late 2011 (Figure  G). The most dramatic recoveriesYields on government bonds in mature economies in equity flows have occurred in the Republicin the latter part of 2011 fell to their lowest levels of Korea and Thailand. Indonesia was also ain recent years and have continued to fluctuate in a recipient of increased volumes of foreign portfoliorelatively narrow range in early 2012 (Figure C). investment prior to the anticipated upgrade of its sovereign credit rating to investment grade byGrowth in emerging East Asia is expected to Fitch Ratings (December) and Moody’s Investorsremain robust this year, driven by domestic Service (January).demand and regional reconstruction activities,as Japan and Thailand recover from last year’s The inflows to emerging East Asia’s LCY bondnatural disasters and supply disruptions. The market—spurred by interest rate differentials andexpansion of government spending in several easy monetary conditions in mature markets—areother emerging East Asian countries should expected to continue exerting downward pressurealso support domestic growth in the region. The on domestic yields. This trend could accelerateability of governments to increase expenditures in 2012 in anticipation of the appreciation ofin 2012 has been helped by decreases in local domestic currencies.financial market volatility and lower emergingmarket sovereign bond spreads (Figure D). The Total bonds outstanding in emerging East Asia’sJP Morgan Emerging Market Bond Index (EMBI) LCY bond market grew 7.0% year-on-yearfor stripped spreads has moved downward since (y-o-y) in 4Q11, up from 5.7% growth in 3Q11.the beginning of 2012 (Figure E). The government bond market grew a modest 2.5%  y-o-y in 4Q11. Meanwhile, the corporateWhile growth prospects for emerging East Asia segment of the region’s bond market grew aremain robust, simmering uncertainties in the much more robust 17.1% y-o-y, led by Indonesiaeurozone and weak external demand could dampen (28.0%), the PRC (26.0%), the Philippinesthe investment outlook. (13.4%), and the Republic of Korea (12.1%).Inflationary pressures have moderated but could At end-September 2011, emerging East Asia’sspike on the back of rising oil prices and/or volatile share of the global LCY bond market stood at 8.1%, 5
  10. 10. Asia Bond Monitor Figure A: Credit Default Swap Spreadsa, b Figure B: Credit Default Swap Spreads for Select (senior 5-year) European Marketsa, b (senior 5-year) mid-spread in basis points Ireland, Italy, Portugal, Spain Greece 1,400 mid-spread in basis points mid-spread in basis points China, Peoples Rep. of 1,800 40,000 1,200 Hong Kong, China Indonesia 1,600 Greece 35,000 Ireland 1,000 Korea, Rep. of 1,400 Italy 30,000 Japan Portugal 800 Malaysia 1,200 Spain 25,000 Philippines Thailand 1,000 600 20,000 800 15,000 400 600 10,000 400 200 200 5,000 0 0 0 Dec Jun Dec Jul Jan Jul Feb Aug Mar Dec Apr Aug Jan May Sep Jan Jun Feb Jun Nov Mar -07 -08 -08 -09 -10 -10 -11 -11 -12 -07 -08 -08 -09 -09 -09 -10 -10 -11 -11 -11 -12 Figure C: 10-Year Government Bond Yields Figure D: US Equity Volatility and Emerging Market (% per annum) Sovereign Bond Spreadsb Japan eurozone, UK, US basis points index 4.0 6.0 1,000 90 3.5 US 5.5 900 EMBIG Spread VIX Index 80 UK 3.0 5.0 800 70 4.5 700 2.5 60 4.0 600 2.0 50 500 3.5 40 1.5 400 Japan 3.0 30 300 1.0 2.5 200 20 0.5 2.0 10 eurozone 100 0.0 1.5 0 0 Jan Jul Feb Sep Mar Oct May Dec Jun Jan Aug Mar Jan Sep May Jan Oct Jun Feb Oct Jul Mar -06 -06 -07 -07 -08 -08 -09 -09 -10 -11 -11 -12 -06 -06 -07 -08 -08 -09 -10 -10 -11 -12 Figure E: JPMorgan EMBI Sovereign Stripped Figure F: Headline Inflation Ratesc Spreads basis points % 1,200 30 25 1,000 20 16.44 800 15 Viet Nam 10 4.70 4.60 600 Indonesia 3.56 3.35 Philippines 5 3.20 3. 10 2.70 2.20 347 0 400 0 .10 240 –5 195 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Aug-11 Feb-12 200 169 China, Peoples Rep. of Malaysia China, Peoples Rep. of Malaysia 158 Hong Kong, China Philippines 0 Indonesia Singapore Jan Jul Feb Sep Apr Nov Jun Jan Aug Mar Japan Viet Nam -07 -07 -08 -08 -09 -09 -10 -11 -11 -12 Korea, Rep. of EMBI = Emerging Market Bond Index, EMBIG = Emerging Markets Bond Index Global, UK = United Kingdom, US = United States, VIX = Chicago Board Options Exchange Volatility Index. Notes: a   In US$ currency and based on sovereign bonds. b   Data as of 15 March 2012. c   Data as of February 2012; Japan as of January 2012. Source: Bloomberg LP and Thomson Reuters.6
  11. 11. Emerging East Asian Local Currency Bond Markets—A Regional Update up slightly from 8.0% at end-June and well aboveFigure G: Net Foreign Portfolio Investmentsin Equities its 2.1% share at end-December 1996 (Table B).Indonesia, Philippines, The PRC and the Republic of Korea remained the Thailand, Viet Nam Rep. of Korea two largest bond markets in the region, accountingUS$ million US$ million 2,500 6,000 for global shares of 4.8% and 1.7%, respectively. Indonesia 2,000 Philippines Korea, Rep. of 4,000 Meanwhile, the share of the global bond market 1,500 Thailand Viet Nam of ASEAN-6 countries at end-September stood at 1,000 2,000 1.3%.3 500 0 0 –500 –2,000 The risks to the region’s LCY bond markets in 2012–1,000 include (i) a worsening external environment if the –4,000–1,500 eurozone economies sink into a deeper recession,–2,000 –6,000 (ii) tighter monetary policies on the back of Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb -11 -11 -11 -11 -11 -11 -11 -11 -11 -11 -11 -12 -12 rising inflationary pressures, and (iii)  volatileNote: Data as of 29 February 2012. capital flows.Source: Bloomberg LP. Table B: Bonds Outstanding in Major Markets (US$ billion) September 2011 1996 Economy LCY Bonds % of World LCY Bonds % of World Outstanding Total Outstanding Total United States 26,176 38.7 10,926 42.9 Japan 12,626 18.7 4,456 17.5 France 3,384 5.0 1,261 4.9 Germany 2,648 3.9 1,888 7.4 United Kingdom 1,745 2.6 678 2.7 Emerging East Asia 5,479 8.1 528 2.1 of which: PRC 3,247 4.8 62 0.2 Emerging East Asia excl. PRC 2,232 3.3 466 1.8 of which: Korea, Rep. of 1,179 1.7 283 1.1 of which: ASEAN-6 883 1.3 149 0.6 Indonesia 111 0.2 7 0.03 Malaysia 263 0.4 71 0.3 Philippines 75 0.1 28 0.1 Singapore 188 0.3 25 0.1 Thailand 229 0.3 18 0.1 Viet Nam 17 0.03 – – Memo Items: Australia 1,012 1.5 248 1.0 Brazil 1,368 2.0 299 1.2 PRC (excl. policy bank bonds) 2,216 3.3 – – India 649 1.0 81 0.3 Russian Federation 88 0.1 43 0.2 South Africa 179 0.3 82 0.3 – = not available, ASEAN = Association of Southeast Asian Nations, LCY = local currency, PRC = People’s Republic of China. Source: Bank for International Settlements and AsianBondsOnline. 3 ASEAN-6 refers to the six largest economies of the Association of Southeast Asian Nations (ASEAN): Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam. 7
  12. 12. Bond Market DevelopmentsAsia Bond Monitorin the Fourth Quarter of 2011Size and Composition Figure 1: Growth of LCY Bond Markets in 3Q11 and 4Q11 (y-o-y, %)Total bonds outstanding in emergingEast Asia’s LCY bond market rose China, Peoples Rep. of Hong Kong, China7.0% y-o-y and 2.2% q-o-q to reach IndonesiaUS$5.7 trillion at the end of 4Q11, Korea, Rep. ofdriven by strong growth in Malaysia Philippinescorporate bonds.4 4Q11 Singapore Thailand 3Q11The year-on-year (y-o-y) growth rate for emerging Viet NamEast Asia’s local currency (LCY) bond market rose Emerging East Asia –5 0 5 10 15 20 25to 7.0% in 4Q11 from 5.7% in 3Q11 (Figure 1).The government bond market grew by a modest LCY = local currency, y-o-y = year-on-year. Notes:2.5% y-o-y in 4Q11, while the corporate segment 1.�Calculated using data from national sources.of the region’s bond market grew by a much more 2.�Growth rates are calculated from LCY base and do not include currency effects.robust 17.1% (Table 1). 3.�Emerging East Asia growth figure is based on end-December 2011 currency exchange rates and does not include currency effects. 4.�For Singapore, corporate bonds outstanding quarterly figures are based on AsianBondsOnline estimates.The region’s most rapidly growing bond markets on Source: Peoples Republic of China (ChinaBond); Hong Kong, China (Hong Kong Monetary Authority); Indonesia (Bank Indonesia and Indonesiaa y-o-y basis were those of Viet Nam, Singapore, Stock Exchange); the Republic of Korea (EDAILY BondWeb and The Bank of Korea); Malaysia (Bank Negara Malaysia); the Philippines (Bureau of theMalaysia, and the Republic of Korea, which grew Treasury and Bloomberg LP); Singapore (Monetary Authority of Singapore, Singapore Government Securities, and Bloomberg LP); Thailand (Bank of16.5%, 13.1%, 10.4%, and 9.5%, respectively. In Thailand); and Viet Nam (Bloomberg LP).the cases of Viet Nam, Singapore, and Malaysia,growth was mostly due to the rapid expansionof their respective government bond markets. (2.0%), and Indonesia (1.2%). In all three cases,On the other hand, the Republic of Korea’s y-o-y growth was driven by expansion in the corporategrowth rate owes most of its growth to the robust bond market. In fact, the only government bondperformance of its large corporate bond sector. market in emerging East Asia to grow more rapidly than 1.0% q-o-q in 4Q11—besides the Philippines—On a quarter-on-quarter (q-o-q) basis, the was that of the PRC, which grew 1.3%.region’s bond market growth leader in 4Q11 wasthe Philippines, which grew 3.5% on the back of Emerging East Asia’s governmenta strong performance from both its government bond market grew moderately in(3.1%) and corporate (6.5%) bond sectors. The 4Q11 on both a y-o-y (2.5%) andonly corporate bond markets to experience more q-o-q (0.8%) basis.rapid q-o-q growth in 4Q11 were those of Indonesiaand the People’s Republic of China (PRC), which The regional government bond market’s y-o-yexpanded 9.2% and 8.7%, respectively. growth rate of 2.5% in 4Q11 was only a marginal improvement over the 1.8% growth realized inThe second, third, and fourth most rapidly growing 3Q11. The government bond markets reportingLCY bond markets on a q-o-q basis in 4Q11 were the most significant y-o-y growth were those ofthose of the PRC (3.1%), the Republic of Korea Viet  Nam (19.9%), Singapore (16.0%), Malaysia (12.0%), and the Republic of Korea (6.0%).4 Emerging East Asia comprises the People’s Republic of China; Hong Kong, However, all four of these government bondChina; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore;Thailand; and Viet Nam. markets reported either negligible or negative8
  13. 13. Emerging East Asian Local Currency Bond Markets—A Regional UpdateTable 1: Size and Composition of LCY Bond Markets 4Q10 3Q11 4Q11 Growth Rate (LCY-base %) Growth Rate (US$-base %) Amount Amount Amount 4Q10 4Q11 4Q10 4Q11 (US$ % (US$ % (US$ % billion) share billion) share billion) share q-o-q y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q y-o-yChina, Peoples Rep. of (PRC) Total 3,052 100.0 3,247 100.0 3,392 100.0 0.8 15.1 3.1 5.9 2.1 18.9 4.5 11.1 Government 2,408 78.9 2,474 76.2 2,540 74.9 0.02 10.3 1.3 0.5 1.3 14.0 2.7 5.5 Corporate 644 21.1 773 23.8 852 25.1 3.6 37.2 8.7 26.0 4.9 41.8 10.2 32.2Hong Kong, China Total 163 100.0 170 100.0 169 100.0 1.6 14.0 (0.9) 3.1 1.4 13.7 (0.6) 3.2 Government 87 53.3 90 52.8 91 53.7 0.8 25.5 0.9 3.9 0.6 25.2 1.1 4.0 Corporate 76 46.7 80 47.2 78 46.3 2.5 3.2 (2.8) 2.2 2.3 3.0 (2.6) 2.3Indonesia Total 107 100.0 111 100.0 110 100.0 (4.2) 3.1 1.2 3.6 (5.1) 7.8 (1.0) 2.8 Government 94 88.0 96 86.3 93 85.2 (5.9) 0.3 (0.1) 0.3 (6.9) 4.9 (2.2) (0.5) Corporate 13 12.0 15 13.7 16 14.8 11.3 29.8 9.2 28.0 10.2 35.7 6.8 27.0Korea, Rep. of Total 1,149 100.0 1,179 100.0 1,229 100.0 1.2 9.4 2.0 9.5 2.5 13.1 4.2 7.0 Government 492 42.8 501 42.5 510 41.5 (2.0) 7.2 (0.5) 6.0 (0.7) 10.8 1.7 3.5 Corporate 657 57.2 678 57.5 719 58.5 3.7 11.1 3.8 12.1 5.0 14.8 6.1 9.5Malaysia Total 247 100.0 263 100.0 263 100.0 4.7 18.9 (0.7) 10.4 5.5 33.0 (0.1) 6.7 Government 145 59.0 158 60.1 158 59.8 5.7 28.5 (1.2) 12.0 6.5 43.7 (0.5) 8.3 Corporate 101 41.0 105 39.9 106 40.2 3.3 7.4 (0.05) 8.1 4.2 20.1 0.6 4.5Philippines Total 73 100.0 75 100.0 77 100.0 0.9 10.0 3.5 5.9 1.0 15.9 3.4 5.8 Government 64 88.0 65 87.5 67 87.2 0.7 10.1 3.1 4.9 0.8 16.0 2.9 4.8 Corporate 9 12.0 9 12.5 10 12.8 2.6 9.3 6.5 13.4 2.7 15.2 6.3 13.3Singapore Total 169 100.0 188 100.0 189 100.0 (0.6) 9.8 (0.2) 13.1 1.9 20.1 0.6 12.0 Government 103 60.9 116 61.9 118 62.5 3.3 7.0 0.8 16.0 5.9 17.1 1.6 14.8 Corporate 66 39.1 72 38.1 71 37.5 (6.2) 14.4 (1.9) 8.6 (3.8) 25.3 (1.1) 7.5Thailand Total 225 100.0 229 100.0 225 100.0 2.7 14.4 (0.6) 5.3 3.7 27.0 (1.7) 0.3 Government 183 81.4 187 81.5 182 80.8 2.8 16.7 (1.4) 4.4 3.8 29.6 (2.5) (0.5) Corporate 42 18.6 43 18.5 43 19.2 2.2 5.3 3.1 9.1 3.1 16.9 1.9 3.9Viet Nam Total 16 100.0 17 100.0 17 100.0 5.3 37.6 0.4 16.5 5.2 30.5 (0.6) 8.0 Government 14 88.4 15 90.9 15 90.9 1.4 33.5 0.4 19.9 1.4 26.5 (0.6) 11.1 Corporate 2 11.6 2 9.1 2 9.1 48.0 80.3 0.3 (8.7) 48.0 70.9 (0.7) (15.4)Emerging East Asia (EEA) Total 5,200 100.0 5,479 100.0 5,671 100.0 1.0 13.5 2.2 7.0 2.2 18.1 3.5 9.1 Government 3,591 69.0 3,703 67.6 3,774 66.6 0.1 10.8 0.8 2.5 1.2 15.4 1.9 5.1 Corporate 1,610 31.0 1,776 32.4 1,897 33.4 3.2 20.1 5.2 17.1 4.4 24.7 6.8 17.9EEA Less PRC Total 2,148 100.0 2,232 100.0 2,279 100.0 1.3 11.1 1.0 8.6 2.4 16.9 2.1 6.1 Government 1,183 55.1 1,229 55.0 1,234 54.1 0.1 11.8 (0.3) 6.8 1.0 18.3 0.4 4.3 Corporate 965 44.9 1,003 45.0 1,045 45.9 2.9 10.2 2.6 10.7 4.1 15.4 4.2 8.3 Japan Total 11,718 100.0 12,626 100.0 12,715 100.0 1.5 6.2 0.5 2.9 4.5 21.8 0.7 8.5 Government 10,606 90.5 11,467 90.8 11,560 90.9 1.6 6.8 0.6 3.3 4.7 22.5 0.8 9.0 Corporate 1,113 9.5 1,159 9.2 1,154 9.1 0.3 0.6 (0.6) (1.6) 3.3 15.4 (0.4) 3.8LCY = local currency, q-o-q = quarter-on-quarter, y-o-y = year-on-year.Notes:1. For Singapore, corporate bonds outstanding quarterly figures are based on AsianBondsOnline estimates. 2. Corporate bonds include issues by financial institutions.3. Bloomberg LP end-of-period LCY–US$ rates are used.4. For LCY base, emerging East Asia growth figures are based on end-December 2011 currency exchange rates and do not include currency effects.5. Emerging East Asia comprises the People’s Republic of China; Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.Source: People’s Republic of China (ChinaBond); Hong Kong, China (Hong Kong Monetary Authority); Indonesia (Bank Indonesia and Indonesia Stock Exchange); the Republic ofKorea (EDAILY BondWeb and The Bank of Korea); Malaysia (Bank Negara Malaysia); the Philippines (Bureau of the Treasury and Bloomberg LP); Singapore (Monetary Authority ofSingapore, Singapore Government Securities, and Bloomberg LP); Thailand (Bank of Thailand); Viet Nam (Bloomberg LP); and Japan (Japan Securities Dealers Association). 9
  14. 14. Asia Bond Monitorq-o-q growth rates of 0.4%, 0.8%, –1.2%, and Figure 2a: Emerging East Asian LCY Government–0.5%, respectively. In Singapore’s case, the y-o-y Bond Market Annual Growth Rates, 2001–2011 (%)increase was mostly due to the introduction of bill %issuance by the Monetary Authority of Singapore 35(MAS) beginning in April  2011. Malaysia had 30previously issued large volumes of government 25bonds in 2010 and the first quarter of 2011, but 20sharply reduced issuance thereafter. 15 10As mentioned above, the only government bondmarket to report significant q-o-q growth in 4Q11 5was that of the Philippines at 3.1%. This was 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011primarily a result of the Bureau of the Treasury’s(BTr) issuance of PHP110 billion worth of 10- and Figure 2b: Emerging East Asian LCY Corporate Bond15-year Retail Treasury Bonds (RTBs) in October. Market Annual Growth Rates, 2001–2011 (%)In February, BTr sold a total of PHP179.8 billion of % 3515- and 20-year RTBs at coupon rates of 5.375% 30and 5.875%, respectively. 25The y-o-y growth rate for emerging East Asia’s 20government bond market in 4Q11 was the lowest 15in recent years  (Figure 2a) . This reflected a 10(i)  12.4% y-o-y decline in treasury and other 5types of central government issuance (–31.3% 0on a q-o-q basis), and (ii) 0.9% y-o-y decline in 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011issuance by monetary authorities (–11.3% on a LCY = local currency. Notes:q-o-q basis). The decline in treasury bond issuance 1. Calculated using data from national sources. 2. Growth figures are based on end-December 2011 currency exchangein most markets was the result of a reduction or rates and do not include currency effects. Source: Peoples Republic of China (ChinaBond); Hong Kong, Chinatermination of fiscal stimulus programs that had (Hong Kong Monetary Authority); Indonesia (Bank Indonesia andbeen in place since the global financial crisis of Indonesia Stock Exchange); the Republic of Korea (EDAILY Bondweb and The Bank of Korea); Malaysia (Bank Negara Malaysia); the Philippines2007–09. At the same time, most central banks (Bureau of the Treasury and Bloomberg LP); Singapore (Monetary Authority of Singapore, Singapore Government Securities, and Bloombergand monetary authorities have been sharply LP); Thailand (Bank of Thailand); and Viet Nam (Bloomberg LP).curtailing the sterilization activities pursued inrecent years. shrank 47.9% y-o-y, which explains the lowAt the end of 2011, the PRC government bond 0.5%  y-o-y growth rate for the PRC governmentmarket was once again the largest in the region, bond market as a whole in 4Q11.amounting to US$2.5 trillion. The PRC governmentbond market comprises three major components: The corporate bond market in emerging(i) treasury bonds, (ii) central bank bonds, and East Asia expanded 17.1% y-o-y and(iii) policy bank bonds. These three components 5.2% q-o-q in 4Q11, reflecting thehad values of US$1.2 trillion, US$338 billion, acceleration of corporate bond issuanceand US$1.0 trillion, respectively, at the end of in most markets.2011. The most rapidly growing sector of thePRC government bond market in 4Q11 was the The y-o-y growth rate for emerging East Asia’spolicy bank bond sector, which grew at a y-o-y corporate bond market rose to 17.1% y-o-y in 4Q11rate of 25.5%. Treasury bonds grew at a rate from 14.8% in 3Q11, led by Indonesia (28.0%),of 10.8%  y-o-y. Meanwhile, central bank bonds the PRC (26.0%), the Philippines (13.4%), and the10
  15. 15. Emerging East Asian Local Currency Bond Markets—A Regional UpdateRepublic of Korea (12.1%). The 4Q11 outcome for issues from government-owned entities suchthe region’s corporate bond market was robust on as Korea Land and Housing, KEPCO, and Koreaboth a y-o-y and q-o-q basis, with corporate bonds Highway. Finally, financial debentures, whichexpanding 5.2% q-o-q. The most rapidly growing amounted to US$179.8 billion, grew by a marginalmarkets on a y-o-y basis were also those that 1.0% y-o-y.expanded the most—and in the same order—on aq-o-q basis: Indonesia (9.2%), the PRC (8.7%), The pace of corporate issuance of LCY bondsthe Philippines (6.5%), and the Republic of Korea continued to quicken in the early months of 2012,(3.8%). The only markets to experience flat or even in markets where corporate issuance declinednegative q-o-q growth rates in their corporate or was flat in 4Q11, such as Malaysia and Singapore.bond sectors were Viet Nam (0.3%); Malaysia Notable issues from Malaysian corporates in the(–0.05%); Singapore (–1.9%); and Hong  Kong, first several months of 2012 tended to be sukukChina (–2.8%). The region’s corporate bond (Islamic bonds). In January, toll expresswaymarket growth rate fell from slightly higher levels operator Projek Lebuhraya Utara Selatan (PLUS)in 2009 and 2010, but it remains much higher Bhd. issued MYR30.6 billion (US$ 9.7 billion) worththan it was in the middle of the last decade, which of multi-tranche Islamic MTNs, marking the world’ssuggests that growth should remain robust over largest sukuk issuance to date. The sukuk werethe next several years (Figure 2b). issued in 23  tranches, with maturities ranging between 5 and 25 years, and coupons rangingThe acceleration of the PRC corporate bond between 3.90% and 5.75%. In addition, Sarawakmarket’s y-o-y growth rate from 20.0% in 3Q11 to Energy raised a total of MYR2.5 billion from the26.0% in 4Q11 was driven primarily by commercial sale of sukuk, consisting of MYR1.2 billion worthbank bonds, medium-term notes (MTNs), and of 10-year notes and MYR1.3 billion worth of 15-local corporate bonds, which grew at y-o-y rates year notes, with coupons of 4.50% and 4.85%,of 51.6%, 45.9%, and 37.3%, respectively. respectively. In February, telecommunicationsGrowth in state-owned enterprise (SOE) bonds, company Maxis Bhd. sold MYR2.45 billion worth ofon the other hand, was flat at 1.7% y-o-y, while 10-year sukuk paying a coupon of 5.0%.commercial paper and asset-backed securitiesdeclined 23.1% and 47.7%, respectively. The rapid Issuance from Singapore in recent months hasgrowth of commercial bank bonds reflected the fact included a Development Bank of Singaporethat most of these bonds are subordinated notes (DBS) 10-year fixed-rate subordinated note,and will qualify as Tier II capital under Basel  III with a coupon of 3.3%, and a growing number ofcapital requirements. Many local corporate bonds perpetual bonds. In late February, commoditiesare being issued by commercial entities of local trader Olam International issued SGD275  milliongovernments that are facing curtailed bank of perpetual bonds at a yield of 7.0%. In the firstlending, while the issuance platform for MTNs week of March, Singapore Post (SingPost) issuedcontinues to provide an efficient and easy-to-use SGD350  million worth of perpetual bonds pricedsource of finance for firms. at 4.25%, while gaming conglomerate Genting Singapore Plc. priced (at par) SGD1.8 billion ofIn the Republic of Korea, the most rapidly growing perpetual bonds that pay a coupon of 5.125%sector of the corporate bond market in 4Q11 per annum. The bonds are callable at par afterwas once again private sector corporate bonds, 5.5 years and will pay 6.125% from the 10thwhich grew 22.0% y-o-y and 6.5% q-o-q. Private year onward, without the benefit of a subsequentsector corporate bonds totaled US$306.8 billion coupon rate reset.at the end of 4Q11 and accounted for 42% ofthe total corporate bond market. Special public While some of these recent issues pay couponsbonds grew 10.1% y-o-y and 2.6% q-o-q to reach significantly higher than sovereign bonds withUS$232.8  billion. Special public bonds comprise comparable maturities, one frequently observed 11
  16. 16. Asia Bond Monitorweakness of the emerging East Asian corporate from Moody’s, BB+ (stable) from SP, and BB+bond market has been the absence of a significant (positive) from Fitch. Ford’s financing will be thehigh-yield segment in which small and medium- first in the CNH market from an entirely foreignsized enterprises (SMEs) can issue bonds. company with a sub-investment grade rating.Nevertheless, some high-yield (or at leastmoderately high-yield) bonds are beginning to The China Securities Regulatory Commissionappear in the market. (CSRC) has announced that it will allow SMEs in the PRC to begin issuing high-yield bonds that canThis has been the case in Hong Kong, China’s be traded on the stock exchanges of Shanghai andCNH bond market. Most issuers in the CNH bond Shenzhen. The launch date for this new program,market have been blue chip issuers from the PRC has yet to be announced.or abroad, who have the ability to issue at verytight yields. On the other hand, investors are Meanwhile, the Republic of Korea is setting up anbeginning to look beyond top-rated Chinese names SME bond trading platform that is expected to bein search of yields exceeding the 2%–3% range launched in May.that has been typical in the CNH bond market todate. Several examples of high- and moderately Development of the region’s corporate bondhigh-yield bond issues in the CNH market last year market over the next several years could beinclude the following: influenced to some extent by the tightening of bank lending standards in preparation for the(i) On 18 April, Big Will Investment Co., a special implementation of Basel III capital regulations. purpose vehicle of Guangzhou RF Properties, Specifically, the tightening of lending standards and issued a 3-year bond for CNH2.6 billion higher capital requirements and liquidity coverage (US$406 million) with a coupon of 7.0%. ratios could possibly result in greater corporate bond issuance.(ii) On 9 November, Lafarge Shui On Cement raised CNH1.5 billion from the issuance of 3-year Finally, contractual savings institutions (CSIs)— commercial paper with a coupon of 9.0%. pension funds, insurance companies, and social security institutions—are building their portfolios(iii) On 10 November, Tsinlien Group Company, of corporate bonds as rapidly as they are building an investment holding arm of the Tianjin their portfolios of government bonds. Demand government operating in Hong Kong, China, from this sector, discussed in more detail below, issued CNH1.3  billion of 5.75% guaranteed will likely continue to grow as CSIs seek enhanced bonds due in 2014 via its wholly-owned yields and duration. unit, Victor Soar. The bonds were listed a t t h e S i n g a p o r e E xc h a n g e S e c u r i t i e s The Growing Role of Contractual Trading Limited. Savings Institutions in Emerging East Asia’s Bond MarketNeither the Big Will, Lafarge Shui On Cement,nor Tianjin–Victor Soar CNH bonds were rated. CSIs have become an increasingly importantHowever, the French-based Lafarge cement investor class in the emerging East Asian bondcompany guaranteed the Lafarge Shui On bond market in recent years, reflecting the ongoingbased on its ratings of Ba1 from Moody’s and BB+ maturation of the region’s bond markets.from SP. Government bonds held by CSIs. The rapidMore recently, Ford Motor of the United States (US) growth of government bonds held by insuranceissued a CNH1 billion 3-year bond with a coupon companies and other CSI investors over theof 4.875%. Ford has ratings of Ba1 (positive) last 5 years is shown in Figure 3a. The PRC and12
  17. 17. Emerging East Asian Local Currency Bond Markets—A Regional Updatethe Republic of Korea have seen the most rapid US$36.9 billion from a high of US$37.9 billion atoverall growth in CSI holdings of their government end-September 2010.bonds. In the Republic of Korea, the US$ value ofgovernment bonds held by insurance companies Finally, Singapore Government Securities (SGS)and pension funds reached US$114.3 billion at held by Singapore’s Central Provident Fund (CPF)end-December of last year. In the PRC, the amount at the end of 2010 amounted to SGD176 billion, orof treasury bonds and policy bank bonds held by slightly less than US$140 billion. The SGS issuedinsurance companies has been on a long-term rise to the CPF are non-tradable and AsianBondsOnlinesince the 1997/98 Asian financial crisis, reaching does not include them in its database on SingaporeUS$151 billion at the end of 2011. government debt.Government bonds held by insurance companies The proportion of total government bondsand pension funds in Indonesia have increased outstanding held by CSIs varies a great deal fromat a more gradual pace in recent years. Holdings one market to another across the region. It is theof Malaysian government bonds by Malaysian lowest in the PRC, where the percentage of PRCinsurance companies and social security institutions government bonds held by insurance companiesalso have grown moderately in recent years to is only 6.9%. The percentage is highest inreach US$35.7 billion at end-September. Holdings Thailand, where the share of government bondsof Thai government bonds (excluding central (excluding central bank bonds and SOE bonds)bank bonds and SOE bonds) by Thai insurance held by insurance companies and contractualcompanies, pension funds, and social security savings funds is 45% of the total. In betweeninstitutions declined slightly at the end of 2011 to these two extremes is the Republic of Korea, where the percentage of government bonds held by insurance companies and pension funds Figure 3a: Trends in Holdings of Government is 25%, and Indonesia, where the percentage Bonds by CSI Investors of treasury bonds held by insurance companies US$ billion and pensions funds is 18%, with insurance 160 companies accounting for 13% and pension funds 140 holding 5%. 120 100 Corporate bonds held by CSIs. Investments 80 by insurance companies and pension funds 60 account for 32% of all bonds (excluding financial 40 debentures) in the Republic of Korea’s corporate 20 bond market. CSI investors in the Republic of 0 Jun -07 Dec -07 Jun -08 Dec -08 Jun -09 Dec -09 Jun -10 Dec -10 Jun -11 Dec -11 Korea increased their historically low holdings of Peoples Republic of China Malaysia financial debentures to 14% in 2011. Indonesia Thailand Republic of Korea SGS-CPF (Non-tradable) In Malaysia, a combination of insurance CSI = contractual savings institution. Notes: companies and the Employees Provident Fund 1. Data for the Peoples Republic of China refer only to treasury bonds and policy bank bonds. held 46% of total corporate bonds at the end of 2. Special issues of Singapore Government Securities (SGS) held by the 2010. Insurance companies held 33% of total Central Provident Fund (CPF) are non-tradable bonds and are not included in computation of bonds oustanding for Singapore. corporate bonds outstanding, with life insurance 3. Data for Thailand exclude central bank bonds and state-owned enterprise bonds. companies holding the largest share at 30% 4. Data for Singapore as of December 2010; Malaysia as of September 2011. and general insurance companies holding only Sources: Peoples Republic of China (ChinaBond), Indonesia (Indonesia Debt Management Office), Republic of Korea (The Bank of Korea), 3%. The Employees Provident Fund held 13% of Malaysia (Bank Negara Malaysia), Singapore (Central Provident Fund Malaysian corporate bonds at the end of 2010. In Singapore Annual Reports), and Thailand (Bank of Thailand). Thailand, a combination of insurance companies 13
  18. 18. Asia Bond Monitorand contractual savings funds held around 20% Figure 3b: Trends in Holdings of Corporateof Thai corporate bonds at end-September. Bonds by CSI InvestorsContractual savings funds held 11% of the total US$ billionand insurance companies held 9%. 120 100In the PRC’s corporate bond market, insurance 80companies held 21% of total corporate bonds,including MTNs, commercial paper, and commercial 60bank bonds. However, insurance companies held 4057% of commercial bank bonds, of which the 20majority comprise subordinated bonds withlonger maturities and higher yields than most 0 Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec -07 -08 -09 -10 -11other corporate bonds. Thus, they nicely satisfy -07 -08 -09 -10 -11 Peoples Republic of China—Corporate Bondsthe requirements of CSI investors. People’s Republic of China—Commercial Paper Republic of Korea—excluding Financial DebenturesFigure 3b provides a glimpse of investment trends Republic of Korea—Financial Debentures Malaysiain corporate bonds with regard to insurance Thailandcompanies, pension funds, and other CSIs over CSI = contractual savings institution. Notes:the last 5 years. The time series data for CSI 1. Peoples Republic of China—Corporate Bonds include state-owned enterprise (SOE) bonds and local corporate bonds.holdings of PRC corporate bonds in Figure  3b 2. Republic of Korea—excluding Financial Debentures includes private corporate bonds and special public bonds.does not include data on holdings of MTNs or 3. Republic of Korea—Financial Debentures include bank bonds andcommercial bank bonds as data on these CSI bonds issued by Korea Development Bank. Sources: Peoples Republic of China (ChinaBond), Republic of Korea (Theholdings have only been available since the end Bank of Korea), Malaysia (Bank Negara Malaysia and Employees Provident Fund), and Thailand (Thai Bond Market Association).of 2010. Table  2a brings these additional datapoints together. Ratio of Bonds OutstandingHoldings of all types of PRC corporate bonds by to Gross Domestic ProductCSI investors had risen by the end of 4Q11 toan amount equivalent to US$172.0 billion from The ratio of LCY bonds outstandingUS$152.5  billion at end-September. Comparable to gross domestic product in emergingdata for holdings of corporate bonds by CSI East Asia fell to 52.6% in 4Q11 frominvestors in other emerging East Asian markets is 53.1% in 3Q11.presented in Table 2b. The ratio of bonds outstanding to gross domesticFigure 4 compares the ratios of CSI holdings of product (GDP) in emerging East Asia fell to 52.4%corporate bonds to total corporate bonds with in 4Q11 from 53.1% in 3Q11, and from 56.6% inthat of CSI holdings of government bonds to total 4Q10 (Table 3). The ratio of government bonds togovernment bonds in the four markets for which GDP fell to 34.9% in 4Q11 from 35.9% in 3Q11,data are available. The share of CSI corporate while the ratio of corporate bonds to GDP rosebond holdings exceeds that for CSI holdings of slightly to 17.5% in 4Q11 from 17.2% in 3Q11.government bonds in all markets except Thailand. The ratio of government bonds to GDP fell orFurthermore, the absolute value of corporate remained unchanged in 4Q11 in all of the region’sbonds held by CSI investors exceeds the absolute markets except the Philippines, where the ratiovalue of their holdings of government bonds in rose. Meanwhile, the ratio of government bonds tothe PRC, Republic of Korea, and Malaysia. Only GDP remained unchanged at 47.0% in Singaporein Thailand is the absolute value of government and 37.4% in Hong Kong, China. The ratio ofbonds held by CSI investors greater than their corporate bonds to GDP, on the other hand, rose inholdings of corporate bonds. most markets. The only markets to experience a14
  19. 19. Emerging East Asian Local Currency Bond Markets—A Regional UpdateTable 2a: Total Corporate Bonds Held by Contractual Savings Institutions in the PRC (US$ billion) 4Q10 1Q11 2Q11 3Q11 4Q11 PRC Corporate Bonds Held by CSIs 138.4 142.6 160.3 152.5 172.0 Corporate Bonds 83.2 84.9 84.6 79.2 80.4 Commercial Paper 5.6 4.7 3.6 3.3 2.1 Medium-Term Notes 4.0 5.9 5.9 5.2 5.5 Commercial Bank Bonds 45.6 47.1 66.2 64.9 83.9 CSI Holdings as % of Total Corporate Bonds 22% 21% 22% 20% 21% CSI Holdings of Commercial Bank Bonds as % of Total Commercial 49% 49% 56% 55% 57% Bank BondsCSIs = contractual savings institutions, PRC = People’s Republic of China.Source: ChinaBond.Table 2b: Total Corporate Bonds Held by Contractual Savings Institutions in Other Emerging East AsianMarkets (US$ billion) 2006 2007 2008 2009 2010 2011 Republic of Korea 99.4 106.0 87.8 111.7 131.4 162.8 Corporate Bonds 62.3 66.5 55.1 74.6 83.7 103.4 Financial Debentures 37.2 39.6 32.7 37.1 47.7 59.4 CSI Holdings as % of Total Corporate Bonds 15% 16% 16% 17% 18% 22% Excluding Republic of Korea Financial Debentures 27% 31% 29% 29% 28% 32% Malaysia 25.0 30.9 30.7 35.9 46.4 – Insurance Companies 15.4 19.2 19.4 24.9 32.8 – Employees Provident Fund 9.5 11.8 11.3 11.0 13.6 – CSI Holdings as % of Total Corporate Bonds 46% 44% 40% 43% 46% – Thailand 4.3 4.0 4.7 7.3 8.3 – Insurance Companies 1.6 1.6 2.2 2.7 3.6 – Pension Funds 2.7 2.4 2.5 4.6 4.7 – CSI Holdings as % of Total Corporate Bonds 28% 25% 22% 23% 22% –– = data not available, CSI = contractual savings institution.Note: For the Republic of Korea, financial debentures include bonds issued by the Korea Development Bank.Source: Republic of Korea (The Bank of Korea), Malaysia (Bank Negara Malaysia and Employees Provident Fund), and Thailand (Thai Bond Market Association).decline in the ratio of corporate bonds to GDP were 3Q11 level, but was still slightly higher than it wasthose of Hong Kong, China; Malaysia; Singapore; during 2Q11.and Viet Nam. Total LCY bond issuance in emerging East Asia inIssuance 4Q11 reached US$783 billion, a 4.6% rise on a y-o-y basis, but a 7.9% decline on a q-o-q basis.LCY bond issuance in emerging The principal causes of this weak performanceEast Asia totaled US$3.4 trillion in were substantial q-o-q declines in issuance by2011, a decline of 10.2% from 2010. governments and central banks and monetary authorities. As mentioned above, issuance byGovernment bond issuance shrunk by 14.8% central banks and monetary authorities has beenin 2011 to US$2.7 trillion, while corporate bond declining since the middle of 2010 as these entitiesissuance rose 12.5% to US$714 billion. Quarterly have retreated from the sterilization activitiesissuance was quite volatile during the year, pursued in response to the 2007–09 financialwhether measured by government (including SOE) crisis. Governments—and state agencies otherand central bank issuance (Figure 5a), corporate than central banks—sharply reduced their issuanceissuance (Figure 5b), or total issuance (excluding as well in 4Q11. Thus, issuance of treasuries andthe PRC and issuance by the PRC only) (Figure 5c). government agency bonds rose 8.8% q-o-q inIn almost all cases except central bank issuance, 3Q11, but fell 31.3% in 4Q11. On a y-o-y basis,4Q11 was the low point of issuance during the issuance of treasuries and government agencyyear. Central bank issuance in 4Q11 fell from its bonds rose 14.5% y-o-y in 3Q11, but fell 12.4% 15
  20. 20. Asia Bond Monitor Table 3: Size and Composition of LCY Bond Markets Figure 4: CSI Holdings of Government and (% of GDP) Corporate Bonds as Percentage of Total 4Q10 3Q11 4Q11 % China, People’s Rep. of 50 Total 50.2 46.0 45.3 45 40 Government 39.6 35.1 33.9 35 Corporate 10.6 11.0 11.4 30 Hong Kong, China 25 Total 72.9 70.9 69.4 20 Government 38.9 37.4 37.4 15 10 Corporate 34.0 33.4 32.0 5 Indonesia 0 Total 14.9 13.7 13.4 China, Korea, Malaysia Thailand People’s Rep. of Government 13.1 11.8 11.4 Rep. of Corporate 1.8 1.9 2.0 Korea, Rep. of Government Bonds Corporate Bonds Total 110.3 113.7 114.5 CSI = contractual savings institutions. Government 47.2 48.2 47.5 Notes: 1. Data for the Peoples Republic of Chinas (PRC) government bonds Corporate 63.0 65.3 67.0 include treasury bonds and policy bank bonds. Malaysia 2. Data for the PRCs corporate bonds include regular corporate bonds, commercial paper, medium-term notes, and commercial bank bonds. Total 98.6 100.7 97.8 3. Data for Thailands government bonds exclude central bank bonds and state-owned enterprise bonds. Government 58.2 60.5 58.5 4. Data for CSI holdings of government bonds as of December 2011. Corporate 40.4 40.2 39.3 5. Data for CSI holdings of corporate bonds for the PRC and the Republic of Korea as of December 2011; Malaysia and Thailand as of September Philippines 2011. Total 35.5 34.4 34.8 Source: Peoples Republic of China (ChinaBond), Republic of Korea (The Bank of Korea), Malaysia (Bank Negara Malaysia), and Thailand (Bank of Government 31.3 30.1 30.4 Thailand and Thai Bond Market Association). Corporate 4.3 4.3 4.5 Singapore Total 70.0 76.0 75.2in 4Q11. These outcomes contrast sharply with Government 42.7 47.0 47.0issuance by corporates in the region, which rose Corporate 27.3 29.0 28.243.6% y-o-y and 46.5% q-o-q (Table 4). Thailand Total 66.8 67.0 67.5 Government 54.4 54.6 54.5The three central banks or monetary authorities Corporate 12.4 12.4 13.0that reduced their issuance the most in 4Q11 on Viet Nama q-o-q basis were those of Malaysia (–33.3%); Total 15.4 15.2 14.0Hong Kong, China (–27.3%); and the Republic Government 13.6 13.8 12.7of Korea (–12.0%). Interestingly, issuance by Corporate 1.8 1.4 1.3the People’s Bank of China (PBOC) and Bank Emerging East Asia Total 56.6 53.1 52.4Indonesia (BI) rose on a q-o-q basis by 100.6% Government 39.1 35.9 34.9and 160.5%, respectively. Thus, both the PBOC Corporate 17.5 17.2 17.5and BI may have stepped up their sterilization Japanactivities in 4Q11, after a substantial reduction in Total 185.9 191.5 192.9issuance earlier in the year. Government 168.3 173.9 175.4 Corporate 17.7 17.6 17.5These two sets of figures contrast sharply with the GDP = gross domestic product, LCY = local currency. Notes:y-o-y declines of issuance in 4Q11 by the PBOC 1. Data for GDP is from CEIC. 2. For Singapore, corporate bonds outstanding quarterly figures are based on (–18.2%) and BI (–66.6%). The rise in BI issuance AsianBondsOnline estimates. Source: People’s Republic of China (ChinaBond); Hong Kong, China (Hong Kongin 4Q11 to US$6 billion from US$2 billion in 3Q11 Monetary Authority); Indonesia (Bank Indonesia and Indonesia Stock Exchange);was modest when taking into account issuance of the Republic of Korea (EDAILY BondWeb and The Bank of Korea); Malaysia (Bank Negara Malaysia); the Philippines (Bureau of the Treasury and Bloomberg LP);US$17 billion in 4Q10. In 2010, BI ceased issuing Singapore (Monetary Authority of Singapore, Singapore Government Securities, and Bloomberg LP); Thailand (Bank of Thailand); Viet Nam (Bloomberg LP); andSertifikat Bank Indonesia (SBI) on a weekly basis, Japan (Japan Securities Dealers Association).16

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