Development of Domestic Bond Market and Implications for Central Bank: Countries' Experiences
This study reviews the current development of the bond market in selected SEACEN member countries, identifies some constraints/challenges in developing the bond market, reviews measures taken to further develop the bond market, and examines implications of bond market development on central banks. It is found that, in the post Asian financial crisis era, the development of domestic bond markets in countries under study is growing rapidly. They more than doubled in size between 1997 and 2003. This impressive growth reflected concerted government measures to develop alternative channels of financial intermediation as well as the funding needs of bank restructuring and government deficits. The high growth of bond markets in the region, however, masks the uneven development in the respective countries, with some being at advance stage while others are at the beginning stage. In some countries, corporate bonds have made a major contribution to the development of their domestic bond markets. Although specific reasons in individual countries may vary, the common problems that hinder efforts to develop their bond markets include underdeveloped secondary market, shallow bond market, and limited supply of bond issues. In countries with more advanced bond markets, they face challenges in auction schedules, hedging instruments, derivatives market, tax treatment, and the implementation of short selling for bond. In less developed bond countries, they still face the basic problem of improving the bond market infrastructure, such as having a good database for bond market management. To develop bond market, the common measures adopted in countries under study include, among others, strengthening the legal and regulatory framework, extending benchmark and adopting auction systems, stimulating demand, improving market infrastructure, improving market liquidity, and promoting regional cooperation in developing bond markets. However, further measures are still needed, such as developing a benchmark bond and broadening the variety of debt instruments. Given the progress made to date and strong political will of countries under study to develop their bond markets, future prospects for further bond market development in the SEACEN countries are excellent. From the central bank perspective, the bond market, in particular government securities market, plays an important role in the implementation of central bank policy. It provides the fiscal authorities with a market-based non-inflationary source of deficit financing, enhancing the efficiency and effectiveness of monetary policy, strengthening financial stability, and serving as a timely predictor of economic prospects. Many central banks have contributed to the development of efficient bond markets by maintaining low and stable inflation rates, using bonds as monetary policy instruments, being an effective fiscal agent of the government, enhancing the transparency of markets, and promoting the development of derivatives markets.
|This book is provided by South East Asian Central Banks (SEACEN) Research and Training Centre in its series Research Studies with number rp59 and published in 2005.|
|Contact details of provider:|| Postal: |
Phone: 603-9195 1888
Fax: 603-9195 1801
Web page: http://edirc.repec.org/data/seacemy.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sea:rstudy:rp59. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yunyee)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.