The Asian Bond Market

One major factor that led to the 1997 Southeast Asian financial crisis was the reliance of the afflicted nations on heavy borrowing from western banks. The crisis has shown the massive need for establishing a regional bond market. Given the huge foreign reserves held by Asian central banks, at present, it is crucial to create a vehicle in order to preserve Asian capital within the region. Recent progress has been made in the direction of creating regional bond markets in the areas of Asian Bond Fund (ABF) that deals in foreign currency and Asian Basket Currency (ABC) bonds that deal in local currency. It’s been almost a quarter of a century since the 1997 Asian financial crisis. In the years since then, there have been a number of seismic shifts in Asia’s financial markets. This has been reflected in major improvements in the issuance of Asian government bonds. Yet, the area of corporate bonds in the region still remains somewhat underdeveloped due to the lack of credit ratings at investment grade. Addressing the issue of ratings is one of the real challenges that must be overcome before the Asian region could have a viable bond market. Following the central banks’ policies of quantitative easing that were deemed necessary to deal with the economic downturn of the Great Recession of from 2007–2009 and the covid-19 pandemic, capital flows to the region had grown rapidly. Asian policy makers, however, should not lower their guard because the flows can be reversed at any point by external conditions.