Two New Reports Help ASEAN+3 Move Steadily Toward Integrated Bond Markets

A busy road near the Grand Palace in Bangkok, Thailand.
A busy road near the Grand Palace in Bangkok, Thailand.

By Satoru Yamadera

The reports provide a practical framework and regional visions for further harmonization of bond markets in the region, expected to reap huge rewards for borrowers and investors.

Integrating bond markets across the ASEAN+3 group of countries is a huge task but this process once complete will, in the end, reap huge rewards for borrowers and investors right across the region.

This week, two key reports were released under the Asian Bond Markets Initiative (ABMI) of the ASEAN+3 group, which includes the 10 countries of Association of Southeast Asian Nations plus the People’s Republic of China, Japan, and the Republic of Korea. The reports provide a practical framework and regional visions for further harmonization of bond markets. The publications are the outcome of discussions by the ASEAN+3 Bond Market Forum (ABMF). ABMF, which features more than 100 members and experts from financial institutions, central banks, and market authorities, functions as a common platform to foster standardized market practices and harmonized regulations for cross-border bond transactions in the region.  

The first report, “Implementation of ASEAN+3 Multi-Currency Bond Issuance Framework (AMBIF),” lays out a common local bond issuance framework for issuers looking to raise money in multiple jurisdictions in the region. AMBIF is expected to make intra-regional bond issuance and investment easier by creating common market practices; utilizing a common document for submission called the Single Submission Form; and highlighting transparent issuance procedures as documented in the Implementation Guidelines for each participating market. The first pilot issuance under AMBIF is underway, and we hope this will lead to a series of issuances demonstrating the ease and value of cross-border bond sales.

The second report, “Harmonization and Standardization of Bond Market Infrastructure in ASEAN+3,” shows how different bond markets in the region will become more interoperable by harmonizing transaction flows, standardizing messaging items, and implementing international standards. Bond markets should be developed in line with a common understanding of what needs to be harmonized and integrated from the early stage of development. This report provides a roadmap towards more standardized and harmonized markets by 2020.  

We are aware that the adoption of AMBIF and standardization may require time and much practice. Market practice needs to develop with the evolution of regional markets. Besides, there are remaining challenges such as differences in taxation and regulatory reporting which may practically impede cross-border transactions by adding costs for trade and compliance. It is necessary to recognize that the effort for harmonization and standardization is long and complex but the acceptance of AMBIF, and strong support for standardization by the authorities shows our collaborative approach under ABMF is on the right track.

ASEAN+3 member countries have made much progress in developing local currency bond markets as an alternative source of funds to foreign currency-denominated, short-term bank loans for their long-term investment financing needs. The importance of building local currency bond markets was a lesson from the Asian financial crisis in the late 1990s. Since the inception of ABMI, these markets have grown rapidly with local currency bonds outstanding rising from $1.349 trillion at the end of 2003 to $8.196 trillion at end-2014 – a more than six-fold increase. However, the markets remain largely segregated, and intraregional transactions remain limited compared to trade linkages and supply chain networks in the region. If efforts toward harmonization and integration succeed, the markets will be able to benefit from much larger economies of scale, and efficiencies will increase. In this way, the vast savings in the region can be channeled into the region’s enormous investment needs.

ABMF is Asia’s primary forum for the exchange of views between the public and private sectors. It tackles industry challenges and continues to function as a regional platform to propose and implement measures to achieve more integrated bond markets. This is a good example of regional cooperation and collaboration between the public and private sectors for a regional good. As the Secretariat of ABMF, ADB continues to support market developments and coordinate amongst the various stakeholders for regional institutional building.