Vietnam government bond yields increase across all maturities

Financial conditions in emerging East Asia weakened in the third quarter of 2023 amid expectations of higher and longer-term interest rates in the United States. Government bond yields rose in most markets in the region in response to higher US interest rates, according to a new report released today by the Asian Development Bank (ADB).

The US Federal Reserve’s recent indication of its intention to keep interest rates higher for longer contributed to weaker financial conditions in emerging East Asia between September 1 and November 10, according to the latest edition of the Asia Bond Monitor, released today (November 27).

Weak external demand and a moderate growth outlook in the People’s Republic of China (PRC), coupled with a tightening monetary stance by the Federal Reserve, have weighed on regional equity markets and raised risk premiums. Capital outflows from the region have been seen in regional equity and bond markets. A stronger US dollar due to higher US interest rates has also weighed on regional currencies.

Emerging East Asia includes the member economies of the Association of Southeast Asian Nations (ASEAN); China; Hong Kong (China); and South Korea.

“We see inflation easing in emerging East Asia over the next few years, which is a welcome development as it gives central banks in the region more room to support economic growth,” said ADB Chief Economist Albert Park. “At the same time, they need to remain vigilant against the risk of financial instability, as interest rates remain high for longer. Strengthening economic fundamentals will ensure financial stability and support growth.”

Bond issuance in emerging East Asia rose 8.6 percent quarter-on-quarter to $2.5 trillion in the third quarter of this year. The region’s total local currency bond stock rose 2.5 percent to $23.5 trillion. Government bonds rose 3.0 percent amid rising issuance, accounting for 62.4 percent of the region’s total local currency bond issue. Corporate bonds rose 1.5 percent.

The State Bank of Vietnam’s continued issuance of central bank bills helped the economy’s domestic bond market expand 3.9% quarter-on-quarter. At the end of September, total bonds outstanding reached $108.6 billion. Government bond growth slowed due to low maturities and lower issuances during the quarter. Corporate bonds declined 3.1% quarter-on-quarter due to large maturing bonds in the third quarter of 2023.

Vietnam’s government bond yields rose across all maturities between September 1 and November 10, driven by rising inflation and the US Federal Reserve’s decision to keep interest rates high for longer. Consumer price inflation rose to 3.6% year-on-year in October from 2.1% in July, but remained below the government’s target of 4.5% for all of 2023.

Total sustainable bond issuance in the ASEAN plus China, Japan and Korea (ASEAN+3), which is used to finance projects and programs with positive environmental and social impacts, reached US$734.1 billion at the end of September, following a large issuance of US$57.3 billion in the third quarter. ASEAN+3 accounted for 36.3% of total global sustainable bond issuance in the third quarter of 2023, making it the second-largest regional sustainable bond market in the world. ASEAN markets contributed 7.4% of total issuance in ASEAN+3./.

Source link