Vietnam has fastest-growing local currency bond market
Posted: December 5, 2011 in Asian Currency Markets – Vietnam was the fastest-growing local currency bond market in the third quarter of the year, increasing 22.2 percent year on year to 17 billion USD, according to the latest Asia Bond Monitor report released by the Asian Development Bank (ADB) on Nov. 29.

Of this, the corporate bond market grew by a healthy 34.7 percent with the Government bond market increasing 21.1 percent, the report stated.

The report assessed the bond markets of mainland China , Hong Kong , Indonesia , the Republic of Korea , Malaysia , the Philippines , Singapore , Thailand and Vietnam .

The report stated that domestic and offshore investors were still interested in emerging East Asia ‘s local currency bonds but the region’s markets were facing increasing challenges.

Specifically, emerging East Asia ‘s local currency markets continued to expand but at a slower rate than previously. At the end of September, the region had 5.5 trillion USD in outstanding bonds, 5.5 percent more than a year earlier in local currency terms. That compared with a year-on-year growth rate of 7.6 percent at the end of the second quarter of 2011.

The expansion in the third quarter was largely due to strong growth in the region’s corporate bond market, which expanded by 15.4 percent, while the Government bond market grew by a smaller 1.3 percent.

” Asia ‘s low debt levels, strong economic fundamentals and the yield pick-up compared with bonds of developed markets contributed to the attractiveness of local bonds,” said Iwan J Azis, head of the ADB’s Office of Regional Economic Integration.

Still, risks include growing uncertainty surrounding the European economies, which was generating volatility in global and regional markets and a flight to safe-haven investments. Furthermore, the slowdown in Asia ‘s economic growth and the potential for abrupt capital outflows were also challenges, the report said.

The report also stated that bonds issued by local governments could become an interesting new asset class in the local markets.

Mainland China has the largest local currency bond market in emerging East Asia with 3.2 trillion USD in bonds outstanding at the end of September, a year-on-year increase of 3.5 percent and a rise of 0.5 percent in comparison with that of the end of June. Of this, the corporate bond market saw a year-on-year growth of 20 percent, contrasted with the 0.7 percent contraction in the government bond market.

Bond issuance in the region totalled 829 billion USD in the third quarter, up 7.6 percent versus the second quarter but down 19.9 percent year-on-year as central banks reduced sales to offset foreign exchange inflows. Corporate issuance was also down 24.4 percent on a year-on-year basis. This decline, however, was from extraordinarily high levels in 2010.

AsianBondsOnline’s latest liquidity survey of more than 100 investors showed that bid-ask spreads have widened compared with last year but turnover ratios had improved. The survey results showed that market participants wanted governments to issue more bonds to improve market liquidity.

As of the end of October, borrowers in emerging East Asia had raised 63 billion USD in so-called G3 bonds – or bonds denominated in US dollar, euros or Japanese yen, suggesting the region may, after all, fall short of the record 87 billion USD in issuance witnessed in 2010.

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