Bond Yields in Emerging East Asia Rise As Expectations of Prolonged High Interest Rates

Released today, the Asia Bond Monitor reveals that regional bond markets experienced outflows totaling $20 billion during March-April.

Bond yields across emerging East Asia have surged as expectations solidify around sustained high interest rates, according to the latest Asian Development Bank (ADB) report.

Released today, the Asia Bond Monitor reveals that regional bond markets experienced outflows totaling $20 billion during March-April. This trend was driven by slower-than-anticipated disinflation, which bolstered prospects for prolonged elevated interest rates, pushing up both short-term and long-term bond yields across advanced economies and regional markets.

The depreciation of regional currencies against the US dollar and widened credit default swap spreads further underscored the impact of these developments. Although most regional equity markets saw gains supported by optimistic economic outlooks, ASEAN markets witnessed outflows amounting to $4.7 billion.

ADB Chief Economist Albert Park commented on the region's financial resilience amidst these challenges: "Emerging East Asia’s financial conditions remain robust. However, geopolitical tensions and adverse climate events present upside risks to inflation, introducing uncertainty regarding disinflation trends and global monetary policies."

The local currency bond market in Emerging East Asia expanded modestly by 1.4% in the first quarter of 2024, reaching $24.7 trillion. This growth was tempered by reduced government bond issuances in China and Hong Kong, while the corporate bond segment saw robust activity driven by substantial issuances in these economies, particularly in response to domestic economic stimuli in China.

The report highlighted a shift towards higher-for-longer interest rates, influencing sustainability considerations in bond markets across ASEAN, China, Japan, and South Korea (ASEAN+3). This trend contributed to a decline in sustainable bond issuances, which totaled $805.9 billion by March 2024.

Despite being the world’s second-largest sustainable bond market with an 18.9% global share, ASEAN+3's sustainable bonds constitute only 2.1% of its total bond market, lagging behind the European Union’s 7.3%.

The ADB continues to prioritize sustainable and inclusive economic growth across Asia-Pacific while maintaining efforts to eradicate extreme poverty. Established in 1966 and comprising 68 member countries, the ADB remains committed to fostering resilience and sustainability in the region's financial markets.