Volatile interest rates, a fractious geopolitical landscape, and rumbles in the Chinese property sector. Despite these headwinds, the international bond markets in Asia were relative bastions of resilience, with the annual issuance of cross-border bonds from Asia in 2023 (US$380bn) edging ahead of that in 2022 (US$370bn).
However, the total regional issuance volume in 2023 remained below the record level of more than US$620 billion seen in 2021, as Asian issuers showed an increased preference for issuing bonds in domestic currencies for cost-effectiveness during 2022 and 2023, turning to domestic bond markets, bank loan markets and private debt markets.
The figures feature in a report from the International Capital Market Association (ICMA) and the Hong Kong Monetary Authority, which looked at markets across Asia, including China, India, ASEAN, Japan, and South Korea.
ICMA CEO Bryan Pascoe said, “Asian financial centres continue to play a significant role in the development of international bond markets, despite the macroeconomic headwinds experienced in 2023. Beyond the headline figures, we see foundational work in digitalisation that should drive strong growth.”
Asian International Bond Markets: Development and Trends considered trends in both issuance and trading of international bonds in the region. Three jurisdictions – Japan (30%), China (28%) and South Korea (15%) – account for three-quarters of the cross-border Asian bond market.
The China offshore market, while still influential, experienced a decline in its overall market share. China’s international bond issuances declined by approximately 12% year on-year to US$108 billion in 2023 from US$122 billion in 2022 and US$230 billion in 2021.
Challenges within the Chinese property sector were cited in the report affecting spreads and liquidity. Beijing’s grip on the crisis has allayed fears and there is hope that the central bank will be able to stabilise the property sector while also stimulating economic growth.
Despite all the challenges faced in recent years, market participants anticipated a potential recovery in 2024 with lower US yields potentially attracting more Asian corporates to re-enter the international market.
Of all Asian international bonds in the primary market, the share of issuance arranged within Asia grew from about 10% in 2006 to 30-40% over the past four years. Hong Kong consistently maintained its position as the primary location for arranging international bond issuances from Asian entities.
In terms of listing locations, Singapore and Hong Kong continued to be the region’s top two most popular choices for listing Asian international bonds in 2023, a trend that has persisted since 2011. The issuance volume of international sustainable bonds by Asian issuers experienced significant growth in 2021, approaching US$100 billion. The volume stabilised at about US$80 billion in 2022 and 2023.
Japan and Korea were prominent issuing countries, collectively contributing to an average of 40% of the annual issuance volume between 2019 and 2023.
Hong Kong witnessed a substantial increase in issuance volume in 2023, doubling year-on-year to approximately US$16 billion.
In terms of currency distribution, approximately 70% of the total issuance was denominated in USD, followed by about 11% in RMB and approximately 9% in EUR. Yen denominated issuance only accounted for about 1%.
Efforts to promote digitalisation and innovative technologies in Asia’s bond markets in 2023 aimed to enhance efficiency and improve market infrastructure, facilitating smoother operations and transactions.
In line with the primary market, secondary market activities and volumes saw a steady increase in activity from 2020 to mid-2022 but have been in decline leading to 2023, particularly with respect to non-financial issuers. Partly this can be attributed to changing market conditions, with higher yields and widening credit spreads. However, the most significant was the strong correlation between primary issuance and secondary activity, the report found.
Participants reported a continued push across the market to trading on venues, rather than traditional voice (or message) based transactions, in p[articular for smaller trade sizes and more liquid credits, where algorithmic price generation and order flow were becoming increasingly common.
The most used e-trading protocol remained Request-for-Quote (“RFQ”). However, participants confirmed a growing adoption of other protocols, in particular All-to-All (“A2A”) and Portfolio Trading (“PT”).
Despite the challenges of recent years, which saw reduced volume in both primary issuance and secondary trading in the Asia international bond market, interviewees were broadly optimistic for 2024, with China set to remain a “critical” element of any bounce back.
©Markets Media Europe 2024
