A new report by the Asian Development Bank (ADB) reveals that Vietnam’s sustainable bond market reached US$800 million by the end of March 2024. This market comprises green bonds and sustainable bond instruments issued solely by corporates, mostly with short-term tenors.
The report also indicates that Vietnam’s local currency bond market experienced a 7.7% quarterly increase, driven by increased government issuances and the State Bank of Vietnam’s resumption of central bank bills issuance in March. Treasury and other government bonds grew by 3.3% from the previous quarter to meet the government’s funding needs, while corporate bonds contracted by 0.9% due to numerous maturities and low issuance volume.
Government bond yields rose by an average of 56 basis points across all tenors, influenced by rising domestic inflation and the US Federal Reserve’s delay in cutting its policy rate. Vietnam’s year-on-year consumer price inflation rose to 4.44% in May, nearing the government’s 4.5% ceiling.
ADB noted that bond yields in emerging East Asia increased amid expectations of prolonged elevated interest rates. The latest Asia Bond Monitor reported bond outflows from regional markets totaling US$20 billion in March–April. Slower-than-expected disinflation bolstered the likelihood of sustained high interest rates, pushing up short- and long-term bond yields in both advanced and regional markets.
Regional currencies depreciated against the US dollar, and credit default swap spreads widened in most markets. While most regional equity markets gained due to a positive economic outlook, Asean equity markets saw outflows of US$4.7 billion.
The report further revealed that emerging East Asia, which includes Asean member economies, China, Hong Kong, and South Korea, saw slower local currency bond market growth in the first quarter of 2024, expanding by 1.4% to reach US$24.7 trillion. This slowdown was due to contractions in government bond issuances in China and Hong Kong, which tempered overall regional market expansion.
However, the regional corporate segment showed growth, bolstered by strong issuance in China and Hong Kong as the Chinese government implemented measures to stimulate the domestic economy. Despite this, higher-for-longer interest rates negatively impacted sustainable bond markets in Asean, China, Japan, and South Korea (Asean+3), resulting in a contraction in sustainable bond issuance, which stood at US$805.9 billion by the end of March 2024.
“Emerging East Asia’s financial conditions remain resilient but lingering geopolitical tension and adverse climate events pose upside risks to inflation, adding uncertainty over the path of disinflation,” said ADB chief economist Albert Park.
He added, “Some regional monetary authorities may hold interest rates higher for a longer period to safeguard currencies amid the uncertainty in disinflation trends and global monetary stances.”