In comparison, China’s bond market has an outstanding size of $9.2 trillion, comprising 72 per cent of the regional total at the end of September. It was followed by South Korea with a bond market size of $2 trillion, Thailand at $337 billion, Malaysia at $330 billion, Singapore at $291 billion, Hong Kong at $250 billion, Indonesia at $185 billion and the Philippines at $107 billion.

Viet Nam’s bond market was boosted mainly by the Government bond market which posted a 5.2 per cent on-quarter and 14.7 per cent yearly expansion to $49 billion.

The report pointed out that Viet Nam’s corporate bond market remained small and underdeveloped but continued to expand, posting growth of 2.9 per cent quarter-on-quarter in the third quarter of this year.

Viet Nam’s third quarter bond yields retreated in line with lower interbank rates and improved liquidity among banks in September. The State Bank of Viet Nam was expected to keep interest rates steady for the rest of the year to support economic growth and use other monetary tools to curb inflation, according to the report.

The report also pointed out that unlike other emerging East Asia bond markets, Viet Nam’s debt market was not sensitive to the US monetary policy tightening as bonds were largely held by domestic investors, particularly commercial banks. However, it had been indirectly affected by the US dollar strengthening vis-a-vis most regional currencies.

Market participants in the Asian Bonds Online 2018 Liquidity Survey noted that market conditions were more affected by trade tensions between the US and China, partly because these two markets are among their largest trading partners.

The report forecast that short-term risks would continue to cast a shadow over emerging East Asia’s local currency bond markets. However, they should be able to weather the challenges so long as the region’s policymakers remain vigilant.

“Concerns about emerging markets are looming, but ultimately Asia’s strong fundamentals should attract investors back to the region’s local currency bond markets,” said ADB Chief Economist Yasuyuki Sawada. “That said, the region’s policymakers must closely monitor developments and keep up their guard against potential shocks.”

Short-term risks included general risk aversion toward emerging markets, faster-than-expected hikes in US interest rates, and escalating global trade tensions. Depreciation of regional currencies and capital outflows posed further risks to the region’s financial stability, according to the report.