Asia Bond Monitor March 2018
Abstract
Description
Risks to economic growth and stability of East Asia remain—faster-than-expected rate hikes in the United States and monetary policy normalization in other advanced economies; and growing threats of protectionism.
The continued recovery in the global economy has contributed to a rally in financial markets that lasted through January. Financial risk and volatility indicators—such as the CBOE Volatility Index, credit default swap spreads, and emerging market bond spreads—narrowed in January. However, a price correction in equity markets and an uptick in risk indicators were observed in the first week of February due to uncertainties in US macroeconomic policies and expectations of accelerated rate hikes by the Federal Reserve. Financial markets and volatility indicators subsequently stabilized, beginning in the middle of February.
This issue of the Asia Bond Monitor includes two special discussion boxes. Box 1 discusses the short-term and long-term effects of global monetary policy normalization and the resultant tighter global liquidity in financial markets in the region.
Box 2 discusses the effects of tighter global liquidity on financial stability in the region. It highlights the implications of rising interest rates on the region’s private debt that accumulated during the low global interest rate environment, and the impacts on the region’s aggregate demand and economic growth.