March 2009

REGIONAL FOCUS : ASEAN-5

GOVERNMENT BONDS SNAPSHOT

Market Overview
Market Share :
Foreign Currency-Denominated Bond

TH ID
SG 6% 11%
37% MY Huge international reserve has
20%
made Singapore fearless to
exchange rate turbulences. No
wonder, it was confident to
lead the market.

PH
Source:ADB;own calculation 26%

Bond Market Size in % GDP Big local currency-based bond

76.3
71.9
market suggested that
Malaysia had wide domestic
Local Currency investor base. Beside, it had
54.3 strong domestic currency.
Foreign Currency
Another advantage: private
sector had big role in its bond
35.9
market.
24.3
20.4 Structure : The Issuers
15.7
11.7 9.38% 8.05%
20.46%
2.9 2.8
45.52% 43.46%

ID MY PH SG TH
Source:ADB
Corp

Govt

Nawa Poerwana Thalo

Research Economist
The Indonesian Institute
ID MY PH SG TH
Center for Public Policy Research
Jakarta-Indonesia
Source:ADB;own calculation
+62.81218054458
 Recent Development:The Performance
Loc al Currenc y Bond Return
( Index,Dec 2000=100)

With its greatest return in the

group, was Indonesia the most
attractive?

ID MY PH SG TH
GOVERNMENT BONDS SNAPSHOT

Source: ADB
Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09
Local Currency Bond Return Index:
The Performance

Average Std.Deviation
Not really. Although it could
perform better, it contained
huge risk. By calculating its
ratio, we found that
Singapore is the “Star”.

ID SG MY TH PH
Source:ADB;own calculation

Yield Spread: 2-year & 10-year Govt Bond

ID SG MY

TH PH In fact, caused by its strong

inflationary pressures,
Indonesia is the only market
which ever suffered inverted
(“wrong way”) yield curve.
Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08
Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Source:ADB
REGIONAL FOCUS : ASEAN-5

Real Y ield:10-y ear Govt Bond

ID SG MY TH PH

On average, Philippines
generated the biggest real
yield. Nevertheless, Thailand
produces the most stable one.
Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08
Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

2
Source: Central Banks;own calculation
 Recent Development: The Convergence
Real Interest Rate
4 out of 5 economies tended
to move with the same
direction. But what happened

Jul-08
Jan-08

Sep-08

Jan-09
Mar-08

May-08

Nov-08
to Malaysia? According to my
ID
calculation, it performed as
SG the most stable inflation rate
economy.
GOVERNMENT BONDS SNAPSHOT

MY
TH
PH Source:ADB; own calculation

Index Volatility:
Exchange Rate Against US Dollar

Relatively fixed exchange

rate made this possible.
ID SG MY TH PH
This also explained why
Malaysia had a very big local
currency-denominated
bond market size.

2003 2004 2005 2006 2007 2008

Source:ADB;own calculation

1000
Spread: Policy Interest Rate & Fed Fund Rate

800 Unlike other members,

Malaysia did not even tend
600
to use interest rate as
ID SG MY
TH PH
instrument for exchange
400
rate stabilization.
200 Then, what is its “hocus-
pocus” for stabilizing
0 ringgit?
Jul-08
Jan-08

Sep-08

Jan-09
Nov-08
Mar-08

May-08

-200
Source:Central Banks;own calculation
REGIONAL FOCUS : ASEAN-5

Average Growth:International Reserve & M2

Intl Reserve Growth yoy Simple answer: its
M2 Growth yoy
international reserve. Its
average growth was lower
than that of its M2.
The chart also showed
behavior of each central
bank dealing with “flight
for safety” shocks. 3
ID MY PH SG TH
Source:ADB;own calculation
 What Should They do to Welcome the Formation of AEC?
GOVERNMENT BONDS SNAPSHOT

Many indicators suggested that these five neighboring economies tended to

move in the same direction. To some degree, Government bond markets were
integrated. Nevertheless -to get mutual benefit from formation of the AEC- the
group must achieve greater convergences among members. High divergences
would lead to different level of willingness to implement the Community.

Member like Indonesia -and Philippines- must realize that it will take a lot of
effort to narrow the gap.

Indonesia, for instance, must concentrate to reduce its inflation rate

substantially, since it had been 4 times higher that that of Singapore.
According to my calculation, such high rate furthermore lowered its bond’s
competitiveness: they yielded only 2 times higher than that of Singapore, but
they are 4 times riskier.

Moreover, in the era of turbulences like recent days, members must enhance
their policy coordination.

Around October to November 2008, quite massive amount of money flew from
Indonesia to Malaysia and Singapore, causing Indonesian rupiah dropped.

Different assurance policy on money deposited in banking system –like either

”blanket guarantee”, “partial guarantee”, or “no guarantee”- had triggered
such mess. What happened had temporarily disturbed stability. When
instability persists, the convergence would only be fantasy.

Yes, different resource resulted different guts. However, things would be

different should these countries employ communal steps.
REGIONAL FOCUS : ASEAN-5

4
GOVERNMENT BONDS SNAPSHOT

Nawa Poerwana Thalo

Research Economist
The Indonesian Institute
Center for Public Policy Research
Jakarta-Indonesia
+62.81218054458
REGIONAL FOCUS : ASEAN-5