Investors search for yield spurs Asian local currency bond trading

Submitted by Vito on Wed, 05/19/2021 - 12:00

After a brief hiatus in 2020, investors have been returning to Emerging Local markets, and more specifically - Asian fixed income markets in a significant way, as the region gradually recovers from the COVID-19 pandemic. This is partly due to the yield premium Asian bonds offer over their peers in the U.S. and the Euro zone, and also because of the volatilities and uncertainties clouding other emerging markets.

Data gathered from the MarketAxess platform shows the extent of investors’ appetite for Asia. For the first quarter of 2021, it recorded a 57% increase in total trading volume for APAC clients, extending the rebound that began in the fourth quarter. Yet the real breakthrough comes from the growth of Asian local markets. Trading activity in the six Asian local currencies offered on our platform grew 38% year-on-year and now accounts for 30% of total local markets volume. That is significantly up from 20% a year earlier and the historical range of 10% to 15%. Our data also shows a massive skewness to the buying of Asian products – for example the ratio of buy/sell of Korean Treasury Bonds (KTB) was 84/16 in the first quarter, compared with the average of 55/45 for our other local markets.

Among our six Asian local markets Singapore Dollar (SGD) posted the largest gain (144%), moving up to the third most actively traded Asia Local Market, while Korean Won (KRW) also took major strides. Trading in Indonesian Rupiah (IDR) and Malaysia Ringgit (MYR), our two biggest Asian local currency markets, have been steady and are now within the top-five most actively traded currencies of the 26 local markets offered on the MarketAxess platform.

As a technology innovator, we are also excited about the increased acceptance by both onshore and offshore investors to use electronic platforms to trade Asian local currencies. Traditionally, these bonds are more likely to be transacted via voice compared to hard currency bonds – those denominated in USD or EUR – given their accompanying FX component. Another reason is that local markets tend to be more rates-focused, which means generally larger deal sizes and hence investors have been more reluctant to switch to electronic trading. However, the increasing client adoption spurred on by the COVID-19 pandemic, means that our work in the past few years to build trading tools and protocols to facilitate electronic trading in Asian local currencies has finally come to fruition.

There are plenty of examples on how our innovation has helped investors transact discretely and in size, ultimately changing their execution preferences to electronic solutions. Over the past few months we have seen uptakes in the adoption of products that have been instrumental in our Asian local markets growth: Request-for-Market (RFM), our block-trading tool that allows investors to inquire and receive two-way pricing with no direction disclosure other than to the winning dealer; and Switch Trading, which allows the buying and selling of two securities in one package where one dealer takes it all.

Even within each local market we are constantly improving our products and technology to provide solutions for our clients, for example: the IRC workflow we built in Korea to simplify investors’ KTB trading is the first of its kind and a major factor behind our growth in that market; in Singapore, we are adding corporate bonds to the list of products we offer; and we are closely monitoring the developments for Indian government bond inclusion in the main EM indexes. We are building up an all-encompassing product offering to cement our market-leading position.

Our goal remains the same: to drive the transformation of Asian fixed income markets by providing better transparency, liquidity and efficiency for our clients.


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Natalie Lowenstein
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