HANOI: The sustainable bond market in Vietnam reached a size of US$800mil at the end of March, according to a new report by the Asian Development Bank (ADB).

The market is composed of green bonds and sustainable bond instruments issued solely by corporates and mostly carrying short-term tenors.

The ADB’s report also showed that Vietnam’s local currency bond market rebounded to a 7.7% quarterly uptick, driven by increased issuances from the government and the State Bank of Vietnam’s resumption of central bank bills issuance in March.

Treasury and other government bonds grew 3.3% from the last quarter to support the government’s funding requirements. Corporate bonds contracted 0.9% due to a large number of maturities and low volume of issuance.

Government bond yields rose an average of 56 basis points for all contract lengths, tenors, due to rising domestic inflation and the US Federal Reserve’s delay in cutting its policy rate.

Vietnam’s year-on-year consumer price inflation inched up to 4.44% in May, edging closer to the government’s ceiling of 4.5%.

According to ADB, bond yields in emerging East Asia increased amid strengthened expectations that interest rates will remain elevated for a longer period.

Bond outflows from regional markets reached US$20bil in March-April, according to the latest edition of Asia Bond Monitor.

Slower-than-expected disinflation supported the likelihood of higher-for-longer interest rates and pushed up short-term and long-term bond yields in both advanced economies and regional markets.

Regional currencies depreciated against the US dollar, and credit default swap spreads widened in most markets. Most regional equity markets posted gains supported by a sound economic outlook, but equity markets in Asean witnessed outflows of US$4.7bil.

“Emerging East Asia’s financial conditions remain resilient,” said ADB chief economist Albert Park. “But lingering geopolitical tension and adverse climate events pose upside risks to inflation, adding uncertainty over the path of disinflation.

“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.”

Emerging East Asia includes Asean member economies, China, Hong Kong and South Korea.

Its local currency bond market experienced slower expansion in the first quarter of 2024 at 1.4%, reaching US$24.7 trillion.

Contractions in government bond issuances in China and Hong Kong tempered regional market expansion.

But the regional corporate segment grew, supported by robust issuance in these two economies, with the Chinese government implementing measures to boost the domestic economy.

Higher-for-longer interest rates overshadowed sustainable bond markets in Asean, China, Japan and South Korea (Asean+3), leading to contractions in sustainable bond issuance in the first quarter of 2024, which reached US$805.9bil by the end of March.

This market remains the world’s second-largest sustainable bond market, with an 18.9% global share, trailing the European Union’s (EU) 37.6%.

However, sustainable bonds only comprise 2.1% of Asean+3’s total bond market, compared with 7.3% in the EU.

 - ANN