Developing Local Currency Bond Markets

Local currency (LCY) bond markets play a key role in providing stable medium- to long-term funding to the public and private sector, including infrastructure investments. Given the efforts to upgrade the infrastructure of their rapidly growing economies and to realize the vision of the Belt and Road initiative, such a need for reliable and long-term finance is particularly strong in Emerging Asia. To achieve this, the Asian Development Bank (ADB) estimates a long-term funding need of around $8.2 trillion in the period from 2010 to 2020. Although Asia’s emerging markets economies (EMEs) have undertaken substantial efforts to address these upcoming investments – for instance through the foundation of the Asian Infrastructure Investment Bank (AIIB) –, public resources alone will not be sufficient to match the investments urgently needed.

Against this backdrop, the development of LCY bond markets has regained momentum, with an annual average growth of 20 percent. While the Chinese LCY bond market has become the third largest in the world, many other Asian LCY bond markets are still under their potential, leaving the economic and financial systems more vulnerable to both endogenous and exogenous shocks. To enhance the development of these markets in Asia’s EMEs, the EMDF Financial Sector Stability seeks to support and foster peer-learning and knowledge exchange. The EMDF thereby focuses on the identification of regulatory gaps as well as financing solutions and best practice instruments and approaches that have proven to be effective. Our key topics are:

  • Local currency bonds: Foster the diversification of local investors, enhance product development and adjust regulatory frameworks to better integrate institutional investors in bond markets.
  • Infrastructure bonds: Share successful approaches of product and project development, including securitization and asset backed securities, covered bonds, revenue bonds or blended finance. Identify criteria for “investable/bankable” projects, respecting project cycles.
  • Municipal bonds: Enhance peer-learning on municipal bonds, including risk pooling and diversification instruments, and standardization of debt instruments; develop criteria for benchmark issuancess; develop Medium Term Notes (MTN) programs for repeated frequent bond issuances using base prospectus concepts.

Currently, the partnering countries are China, India, Indonesia and Malaysia as well as Germany. Additional emerging markets are invited to join the EMDF.

Events

  • Upcoming: Side Event at the Silk Road Forum on Infrastructure Finance (October 2016, Jakarta)
  • Upcoming: Expert Symposium on Municipal Bonds (August 2016, Kuala Lumpur)
  • Upcoming: Side Event at the Annual Meeting of the Asian Development Bank (ADB) on Infrastructure Finance, including the launch of the Peer-Learning Policy Report (May 2016, Frankfurt)
  • Conference: Emerging Markets Dialogue on Local Currency Bond Markets & Infrastructure Finance (22-24 November 2015, Beijing)

Partners