In its continuing spotlight on Asian bonds, AFB focuses on the development of the regional bond market in Asia. The need for a bond market need not be overemphasized. A bond market is necessary to meet long-term investment needs and sustain growth. Had the bond market been developed in Asia earlier, these countries could have very well avoided the 1997 Asian crisis.
Most Asian countries have invested surplus domestic savings totaling about USD 2 trillion in Treasuries and bonds of developed nations whereas the former’s requirement for physical and social infrastructure upgrade is double the investible surplus. The poor Asian countries are financing the deficit of rich developed nations. AFB has earlier talked about the dangers of Asian banks’ over-exposure to the US dollar. These diversions are happening mainly due to the absence of developed bond markets to invest the surplus.
However, all these are slowly changing with the initiative to set up a regional bond market under the patronage of the Asian Development Bank. The Pan Asian Bond Fund initiative comprises the Central Banks in East Asian and Pacific regions who have joined hands to float a USD 2 billion single bond fund that will invest in sovereign and quasi-sovereign local currency denominated bonds of the member countries. This has already generated lot of interest among member countries.
Some of the member countries have already opened up their market for foreign players to participate in this bond market. This move will go a long way in deepening the market, and improving the market infrastructure.
Since the 1997 Asian crisis, the regional bond market in Asia has more than doubled to about one-half of the regional GDP. The early pointers are promising but to attain full potential, Asian countries have to jointly evolve guarantee mechanisms to improve investor confidence in cross-border investments.