The calm before the tantrum

INVESTORS in bonds want high returns and stability. In recent years South-East Asian bond markets have offered both. Yields on ten-year government bonds average 7.8% for Indonesia, 6.7% for Vietnam, and around 4% for Malaysia and the Philippines—far above what is on offer in the rich world. Inflation is low and budget deficits are either manageable or non-existent. Local currencies have lost less value against the dollar than most in emerging markets.

From 2005 to 2014 annual bond issuance from Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam rose from $38 billion to $109 billion, according to Dealogic, a financial-data firm. Corporate-bond issuance more than tripled, from $20 billion to $78 billion, although most firms in the region still rely on banks for borrowing. Home-grown institutions such as pension funds and insurers are starting to emerge and invest. And foreigners are taking more of an interest too: between 2009 and 2014 foreign ownership of local-currency bonds more than doubled in Indonesia and Malaysia, and more than quintupled in Thailand (see chart).

But some worry that the...

via The Economist: Finance and economics Business Feeds

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