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Emerging East Asia has shown signs of improving economic growth and rising inflation and a decline in LCY government bond yields was seen in most markets given improving investor confidence. The improved outlook could also strengthen emerging East Asia’s financial markets against the possible reversal of capital flows in response to the Federal Reserve’s expected monetary policy normalization. The notable exception to the regional trend of declining yields was the People’s Republic of China, where 2-year and 10-year yields rose between 31 December and 15 February as the People’s Bank of China engaged in tightening measures to protect against asset and credit risks.

Improving investor confidence also resulted in a decline in credit default swap spreads in all emerging East Asian economies except the Republic of Korea. Furthermore, all currencies in the region appreciated versus the US dollar except for the Hong Kong dollar and Philippine peso.

As the global economy starts to pick up, uncertainties remain that could pose threats to the region’s bond markets. These include

• the acceleration of rate hikes by the Federal Reserve;
• uncertainty over policies in major developed economies, particularly the US and the eurozone; and
• the depreciation of the Chinese yuan, which challenges growth prospects in Asia.

About the publication

The Asia Bond Monitor reviews recent developments in East Asian local currency bond markets along with the outlook, risks, and policy options. It covers the 10 members of the Association of Southeast Asian Nations plus the People’s Republic of China; Hong Kong, China; and the Republic of Korea.