Domestic Bond Markets in the Asia and Pacific Region

Table 1 [ PDF 124.8KB | 1 page ] shows the growth of domestic bond markets from 1995–2008 using BIS data on domestic bonds outstanding in 20 markets. The top panel provides data from 10 key developed countries, and the bottom panel provides data from the 10 countries in the Asia and Pacific region that report to the BIS.

The last row shows that the Asia and Pacific region's share of the total domestic bonds outstanding in all markets covered by the BIS was 2.7% in 1995 and 7.2% in 2008. Total domestic bonds outstanding in the Asia and Pacific region grew from US$656.6 billion in 1995 to US$4,3 trillion in 2008, reflecting the development of the PRC's domestic bond market over the period, which grew more than any other market. The PRC had a 51.4% share of the Asia and Pacific region's domestic bonds outstanding, with a market size comparable to France and almost twice that of Canada and the UK.

While the size of all bond markets in Table 1 increased from 2000–2007, the average of growth rates reported by the Asia and Pacific region markets (244.2%) was higher than the average of growth rates reported by the developed markets (95.0%) and the average of growth rates reported by all markets covered by the BIS (104.5%). Notwithstanding the important contribution made by the PRC, these numbers say much for the success of efforts by policymakers to develop Asia and Pacific region bond markets after the 1997 Asian financial crisis.

Table 1 also shows the impact of the 2007–2008 financial crisis on the domestic bond markets, which was most pronounced in Korea. Total domestic bonds outstanding in Korea fell 19.8% over 2007–2008. The economic effect of a withdrawal of this magnitude (US$213.1 billion) cannot be understated; this amount is equal to the entire bond market of Malaysia (US$199.1 billion) and significantly larger than the market of Thailand (US$146.1 billion). Other countries in the Asia and Pacific region experienced more moderate declines in domestic bonds outstanding (typically less than 10%), with some experiencing an increase (especially the PRC, Malaysia, Singapore, and Thailand). Thus disintermediation activity by the Asia and Pacific region issuers did not suffer as much as direct lending by individual banks or syndicates during the 2007–2008 financial crisis. This suggests that regional securities markets functioned efficiently even when others, especially those in the major financial centers of the UK and US, were in disarray.

Table 2 [ PDF 95.2KB | 1 page ] shows changes in the composition of the same domestic bond markets in Table 1 during 1995–2008. Table 2 compares the average annual compound growth rates from 1995–2008 with the share of bonds outstanding that were government issued and the share of bonds outstanding that had short-term maturities.⁶ The bottom row reports the averages for all markets covered by the BIS, where bond markets grew at a compound rate of 7.05% from 1995–2008, and were mostly comprised government issues and issues with long term maturities. Over the 2000–2008 period, the government share domestic bond markets in all BIS markets increased by 4.6% (from 45.4 to 49.9%), whereas the share of bonds with short-term maturities increased by 0.7% (from 27.0 to 27.7%).

There is considerable diversity in these statistics across domestic markets, although with the exception of Japan, the larger bond markets tended to have a government share of issues less than 50% (e.g., the US has around 30%) and significant long-term short-term bond markets. A significant government sector, which may crowd-out corporate issuers, is linked to the underdevelopment of some bond markets (e.g., India, New Zealand, and Pakistan).

In Australia the presence of fiscal surpluses from 2000–2007 enabled the government to repay debt with the government proportion of bonds issued declining to 16.1%, the lowest proportion recorded. The reverse situation of increasing government share occurred in Germany (17.9%), Japan (18.8%), and Taipei,China (19.7%). For some domestic bond markets (e.g., Philippines) development coincided with a decline in the share of short-term bonds (in the case of the Philippines from 53.1 to 41.5%). This is consistent with a more benign macroeconomic setting with reduced inflationary and exchange rate pressures that encouraged investors to hold longer dated securities.

Download this Paper [ PDF 215.5KB| 26 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.