Manila: The coronavirus disease (COVID-19) pandemic's resurgence in recent months has dampened investor sentiment in emerging East Asia even as accommodative policy stances have kept financial conditions stable, according to the latest issue of the Asian Development Bank's (ADB) Asia Bond Monitor.
China, Indonesia, Malaysia, Thailand, and Vietnam posted declines in yields on short-term (2-year) and long-term (10-year) government bonds from June 15 to August 27. The decline of long-term bond yields in most markets tracked looming uncertainty about recovery prospects amid rising COVID-19 cases. Equity indexes dropped and currencies depreciated in most emerging East Asian markets while foreign portfolio investments flowed outward.
Local currency bond markets in emerging East Asia grew to 21.1 trillion dollars at the end of June, driven by the continuing increase in government bond issuance.
Governments continued to tap local currency bond markets to support pandemic containment and recovery. Outstanding local currency bonds increased 2.9 per cent, accelerating from 2.2 per cent the previous quarter.
Government bonds increased 3.3 per cent to 13.1 trillion dollars compared with 2.1 per cent growth in the previous quarter.
"The emergence of COVID-19 variants and renewed mobility restrictions in some places are stifling the earlier momentum toward a sustained recovery," said ADB Acting Chief Economist Joseph Zveglich Jr.
"However, financial conditions in emerging East Asian economies remain stable, even as they cope with the continuing uncertainty. Some central banks have used small-scale asset purchase programs to improve bond market liquidity and boost private investor confidence."
Zveglich said long-term debt is making up more of the region's local and foreign currency debt structure, and the region's sustainable bond markets are expanding.
Emerging East Asia comprises China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.