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Bond market seen meeting housing need.

The Asian Development Bank (ADB) urged Developing Member Countries to develop housing bond markets to address the increase in housing demand and boost local bond markets.

Based on the Asia Bond Monitor, the ADB said that between 1 March to 15 May, most emerging East Asian markets witnessed a decline in yields on 10-year local currency (LCY) government bonds with the Philippines suffering the largest decline.

The ADB said, however, local currency bond markets in emerging East Asia continued to expand despite the trade conflicts and slowdown in global economic growth.

'The region's bond markets are holding firm but the risks are still to the downside,' said ADB Chief Economist Yasuyuki Sawada. 'That said, we see potential in the development of housing bonds to finance growing demand for homes as countries urbanize and for green bonds to fund clean energy and other climate-friendly projects.'

The ADB said developing a housing bond market will help make houses become affordable for a greater number of people, especially those living in urban areas. The report added that housing construction can boost employment, savings, investment, and productivity in countries.

A housing bond market is a capital market where debt instruments are issued and raised for housing finance. Housing bonds, the ADB explained, are classified in terms of purpose and not type of issuer or method of repayment.

In Asian economies, the ADB said housing finance is extended through commercial bank loans. However, it said that this system is 'structurally limited in meeting the housing finance needs of home buyers.'

'The development of a housing bond market, which should be preceded by the adoption of advanced financial products and techniques, is very important for the growth of the real economy as well as the financial sector, including housing finance,' the ADB said.

The ADB data showed the 10-year government bonds of the Philippines posted a contraction of 39 basis points (bps), larger than the United States which posted a contraction of 38 bps and Portugal, 34 bps.

In Emerging East Asian economies, ADB said after the Philippines, Hong Kong saw a decline of 21 bps followed by Korea and Singapore with 13 bps and 12 bps, respectively.

The report stated that the decline in LCY government bond yields were affected by the decisions of the United States Federal Reserve, the European Central Bank and the Bank of Japan, which indicated that they will maintain their current policy rates for the rest of 2019

'In emerging East Asia, the largest drop in the 10-year government bond yield was observed in the Philippines, where it fell 39 basis points (bps) on the back of a 25 bps policy rate cut on 9 May,' ADB said.

'The Philippines also experienced easing inflation during the review period and received a ratings upgrade of one notch to BBB+ from S and P Global,' it added.

At the end of March, ADB said there were $15 trillion in local currency bonds outstanding in emerging East Asia, 2.9 percent more than at the end of 2018 and 14 percent more than at the end of March 2018.

Bond issuance in the region, meanwhile, amounted to $1.4 trillion in the first quarter, 10 percent higher than in the last quarter of 2018 on the back of stronger issuance of government debt.

'Foreign investors were upbeat on the PRC in the first quarter of 2019 due to a better-than-expected economic performance. Indonesia also enjoyed greater foreign investment but foreign holdings in the Philippines took a hit as investors cashed out profits. Uncertainty over the general election spurred a wait-and-see approach among foreign investors in Thailand,' the ADB said.

The ADB said government bonds accounted for 61.7 percent of emerging East Asia's total local currency bond stock at $9.3 trillion as of the end of March, a 14 percent increase versus end March 2018. It added there were $5.8 trillion in corporate bonds outstanding, 14.2 percent more than a year earlier.

The Manila-based multilateral development bank said China remained the largest bond market in terms of size in emerging East Asia, with 75.3 percent of the region's total outstanding bonds.

Malaysia had the largest market for sukuk, or Islamic bonds, while the Republic of Korea had the largest bond-to-gross domestic product ratio in the first quarter of this year, at 125.6 percent.
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Publication:Business Mirror (Makati City, Philippines)
Geographic Code:90ASI
Date:Jun 19, 2019
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