An improving global economic outlook and progress on coronavirus disease (COVID-19) vaccinations have pushed up bond yields in emerging East Asia.

Local currency bond markets in the region expanded to US$20.1 trillion by the end of 2020, according to the latest issue of the Asian Development Bank’s (ADB) Asia Bond Monitor. Investor sentiment and financial conditions also improved.

“Bond markets in emerging East Asia continued to grow, mobilizing funding for the region’s sustainable recovery from the pandemic,” said ADB Chief Economist Yasuyuki Sawada. “Successful vaccination campaigns, accommodative monetary policy stances, and easing of restrictions are spurring economic activity and shifting the recovery into higher gear.”

Emerging East Asia comprises the People’s Republic of China (PRC); Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.

Vaccine rollouts have started in most markets in the region, lifting confidence, according to the report. At the same time, the uncertainty of the pandemic’s trajectory, particularly with regard to new variants and a possible resurgence in cases, continue to weigh on the development outlook. Uneven vaccine access and a potential adjustment in asset prices due to an escalation of long-term interest rates also pose risks.

Government bond yields in most advanced economies and emerging East Asian markets increased between 31 December 2020 and 15 February 2021. Meanwhile, improved sentiment boosted most equity markets and regional currencies. Capital flows into the region’s equity and bond markets also recovered in the last quarter of 2020.

Emerging East Asia’s local currency bond market reached US$20.1 trillion at the end of December 2020, 3.1% higher than the preceding quarter and 18.1%higher than a year earlier. The size of the bond market grew to the equivalent of 97.7% of the region’s gross domestic product at the end of the fourth quarter of 2020. Local currency bond issuance stood at US$2 trillion.

Government bonds dominated the region’s bond stock at US$12.4 trillion as of the end of December, while corporate bonds amounted to US$7.7 trillion. The PRC remained the region’s largest bond market, accounting for 77.4% of emerging East Asia’s total bond stock.

Viet Nam’s local currency bond market grew 8.1% from the previous quarter to US$71 billion at the end of December 2020. Steady expansion in both the government and corporate bond segments supported the growth.

Viet Nam’s government bonds grew 7.1% from the previous quarter to US$58.8 billion at the end of December, accounting for 82.8% of the country’s total bond stock. Corporate bonds sustained their growth momentum, increasing 13.6% from the previous quarter and 169.5% from a year earlier to US$12.2 billion.

The latest issue of the Asia Bond Monitor features a box highlighting differences between corporate bond markets in East Asia and Latin America, and how they relate to financial resilience. The report also includes three special sections—one on environmental, social, and governance (ESG) bonds in the ASEAN+3markets; another on recent developmentsfor social bonds; and a third on the results of Asian Bonds Online 2020’s annual bond market liquidity survey.