regionalbondmarkets.docVIP

Regional Bond Markets: Rationale, Concerns and Roadmap* October 2003 S. Ghon Rhee, Ph.D. K. J. Luke Distinguished Professor of Finance Executive Director of the Asia-Pacific Financial Markets Research Center University of Hawai’i 2404 Maile Way, C-304 Honolulu, Hawai’i 96822-2282 U.S.A e-mail: rheesg@ web site: /~rheesg *This paper is a revised version of an earlier paper entitled “The Structure and Characteristics of East Asian Bond Markets” presented at the Second Annual Conference of the Pacific Economic Cooperation Council Finance Forum on “Issues and Challenges for Regional Financial Cooperation in the Asia-Pacific” in Hua Hin, Thailand on July 8-9, 2003. Regional Bond Markets: Rationale, Concerns and Roadmap I. Reality Check of Regional Bond Market Activities What is a regional bond market? Is this a market geographically confined to the East-Asian region? Do issuers, buyers, underwriters, and market makers of these bonds all come from the same region? Are regional bonds to be denominated in one of Asia’s currencies or in a basket of Asian currencies? If they are denominated in the U.S. dollar or the euro, are they still classified as regional bonds? Do we expect regional bonds to be rated only by Asian rating agencies? Do we expect regional bonds to be traded only in the region? Finally but most important of all, does it make sense to pursue a regional program when the global financial community is becoming more and more integrated? Before we address these questions, a reality check is in order to make sure we have a comprehensive understanding of the current status of regional market activities. Fact No. 1: McCauley et al. (2002) examined 71 bonds, with a combined face value of US41.2 billion, issued by Asian borrowers (banks, corporations, supranational, and sovereign/quasi-sovereign issuers) during the period between April 1999 and August 2002. They report that 44%-46% of these bonds were purchased by