Developing the bond market(s) of East Asia: global, regional or domestic?

The various initiatives to develop Asian bond markets tend to draw on a shared analysis of the Asian crisis of 1997-98. It is generally agreed that the mismatch between foreign currency debt and domestic currency cash flows, on the one hand, and short-term debt and long-term investments, on the other, left Asian firms and banks vulnerable to changing evaluations of creditworthiness and to exchange rate depreciation. More controversial is a related argument, which gained force as East Asia, excluding Japan, moved into a substantial current account surplus after the crisis. Asia is thought to be missing an opportunity if its savings flow into global capital markets only to be reinvested in some measure in the region at higher yields and at the discretion of global investors. The development of a regional bond market or domestic bond markets is promoted to make financial structures more resilient, to diversify sources of financing and to increase the asset menu for investment in Asia.