International Capital Market Features

International sustainable bond issuance in Asia - by deal nationality

Source: ICMA analysis using Dealogic data (January 2023)

Green, social, sustainability and sustainability-linked bonds (all together “sustainable bonds”) followed the overall trend and also experienced a decline in issuance amount by 22% to USD80 billion in 2022, but its proportion in all international issuance in Asia rose from 16% to 23%, evidencing the attractiveness of sustainable bonds as a financing instrument for issuers.

Behind the headline numbers, issuers, confronted with higher cost of issuing bonds in G3 currencies this year, tended to diversify into other funding sources including bank loans and the domestic bond markets and tap the international bond markets with shorter tenor, waiting for more clarity on the rate hike schedules. Meanwhile, investors indicated they remain generally interested in Asian G3 credits but have become more vigilant on pricing and credit risk.

Despite the unfavourable factors affecting the bond markets in Asia, there have been increasing efforts to test out the application of innovative technologies and promote digitalisation in the Asia bond markets.

Secondary markets

As with the primary market, the Asia international secondary bond market faced a confluence of headwinds over the course of 2022. Interview participants suggest that secondary market conditions were challenging, particularly in some segments, with overall traded volumes lower than 2021, and with regular episodic spates of illiquidity and heightened price volatility.

Interviewees suggest that reduced liquidity, as seen in lower secondary market volumes, is in part a response to higher yields and widening credit spreads, which increase uncertainty for investors and risks for market makers. This can also be attributed to a reduction in primary market activity.

Interviewees note that as a result of large moves and heightened volatility some secondary market liquidity providers suffered meaningful losses in the first half of 2022, which had repercussions for the market for the remainder of the year.

Asia international credit (NFCs) secondary market traded volumes by country of ultimate risk

Source: ICMA analysis using TraX Data from MarketAxess (March 2023)