Investors returning to emerging East Asia markets: ADB

Local and foreign investors' demand for local currency bonds in emerging East Asian markets is rising again, the Asian Development Bank (ADB) said in a report it released on Wednesday.

The Manila-based lender said it expects investors' demand to be sustained in the coming months given the strong economic growth prospects in the region.

"Most emerging East Asia bond markets have regained their bounce. Thailand's bonds though could buck the trend given recent political upheavals," said Iwan J. Azis, head of ADB's Office of Regional Economic Integration.

In the latest Asia Bond Monitor, ADB said bond markets in emerging East Asia expanded by 9.5 percent on year to 7.6 trillion U.S. dollars in the first quarter.

East Asia's government bond market grew 2.2 percent quarter on quarter and 8 percent year on year to 4.6 trillion U.S. dollars during the period. Corporate bonds grew 1.9 percent quarter on quarter and 11.7 percent year on year to reach 3.1 trillion U.S. dollars.

ADB warned, however, that risks such as the U.S. Federal Reserve's decision to reduce its monthly asset purchases, the possible slowdown in China's economic growth and moves by the European Central Bank to counter the threat of deflation could threaten the region's bond market growth.

Azis said governments in emerging East Asia should take the lead in implementing better regulation and oversight of their financial systems to mitigate these risks.