ADB: Bond markets of emerging East Asia boom amid crisis

Special Report:Global Financial Crisis

MANILA, Feb. 10 (Chinese media) -- Emerging East Asia's local currency bond markets are expected to expand this year with several governments likely to sell debt to pump-prime their economies and companies also need to raise fresh funds from local markets, the Asian Development Bank (ADB) said Tuesday.

Jong-Wha Lee, head of the ADB's Office of Regional Economic Integration, said in a press release that the increased reliance on local currency bond markets of Asian nations "provides an excellent opportunity for the region to further develop a more dynamic domestic bond market."

ADB said the local currency bond markets of emerging Asian economies, i.e. 10 members of the Association of Southeast Asian Nations plus Chinese mainland, Chinese Hong Kong and the Republic of Korea, continued to expand throughout 2008 despite the global economic meltdown.

By the end of 2008, total outstanding local currency bonds were3.7 trillion U.S. dollars, 14.9 percent above the end-2007 level, ADB said, adding that the increase was however lower than the 17.6percent annual growth rate in the third quarter last year.

ADB said China, with 2.2 trillion U.S. dollars in outstanding bonds as of end-2008, remains as the region's largest issuer, accounting for most of the growth in the region's local currency bond markets. Vietnam posted the fastest quarterly rate of growth in the fourth quarter of 2008 and also grew more than other countries for the year as a whole.

But ADB also warned the risks as increased sovereign bond sales could raise yields, making issuance costlier. Investor concerns over sustained fiscal deficits could also push up risk premiums and hurt sovereign credit ratings of some economies.

Companies face greater financing risks with borrowing costs remaining high and may get crowded out by higher debt issuance by governments, ADB said.

With Asia's financial firms as major buyers of government's bonds, debt sales need to be managed carefully to maintain financial stability, it added.