THE Asian Development Bank’s Asia Bond Monitor (ABM) has noted that the
looming fiscal cliff in the US and unresolved debt crisis in Europe continue to
weigh on investor sentiment.
In its latest update, ABM notes fiscal cliff
threatens to considerably tighten the fiscal stance in the US at a time when the
economic recovery is still fragile.
It observes: “A divided US Congress
will have to find a way to craft a consensus to avert the forthcoming expiration
of tax cuts and reductions in government spending. Without an agreement, the
fiscal cliff scenario has the potential to push the US economy into a recession
in 1Q13.”
It says that the likely impact on bond yields is uncertain and
depends on the outcome of the budget negotiations. An agreement that averts the
fiscal cliff scenario without addressing the long-run sustainability of US
deficits may not be welcomed by the market.
According to ABM, the global
economy that emerging East Asia faces remains weak, with the growth in the
United States (US) struggling to gain momentum and the eurozone economies
slipping back into recession. At the same time, the growth outlook for the
region’s economies has also worsened with the People’s Republic of China’s (PRC)
growth expected to be at its lowest since the global financial crisis.
It, however, notes: “despite the uncertainties in global financial
markets, the performance of local currency (LCY) bond markets has been robust.
Total bonds outstanding in emerging East Asia’s LCY bond market grew 3.5%
quarter-on-quarter (q-o-q) and 11.0% year-on-year (y-o-y) to reach US$6.2
trillion in 3Q12, driven by a combination of strong growth in both the
government and corporate bond sectors.”
ABM’s analysis underscores the
significance of both direct and indirect channels of shock and volatility
transmission from mature markets to Asian local bond markets.
ABM reviews
recent developments in East Asian local currency bond markets along with
outlook, risks, and policy challenges. It covers the 10 members of the
Association of Southeast Asian Nations (ASEAN) plus the People’s Republic of
China; Hong Kong, China; and the Republic of Korea.
|
