The rise of benchmark bonds in emerging Asia

The most liquid of bonds – often referred to as benchmarks – serve as the focus of price discovery, and in doing so, help to improve the efficiency of financial markets. In this paper, we summarise our ongoing research to see if benchmark bonds exist in emerging market economies and to assess whether there is a connection between their existence and the maturities where authorities have designated official benchmarks. Can we find bonds that act like benchmarks in terms of their liquidity and price movements? We consider four emerging market economies in Asia: Indonesia, Malaysia, the Philippines and Thailand. These are countries where the governments have actively promoted the development of benchmark bonds and have issued those bonds in size to foster their liquidity. To varying degrees, these authorities have also spread their chosen benchmarks across wide maturity ranges in an effort to build benchmark yield curves. To identify the de facto benchmarks, we propose measures of liquidity and price discovery that are appropriate to the sparse data available for these markets. We find that the existence of de jure and de facto benchmarks often do coincide.