Analyzing Bond Markets by Region

Highly-rated sovereign #bonds with short maturities face the lowest demand elasticities from #investment funds, suggesting their role as safe assets. •US Treasuries appear to act as a global safe asset, as bonds issued by most regions other than the euro area are significantly affected by portfolio rebalancing towards US Treasuries following a shock to US T-bill returns. •German Bunds exhibit characteristics of a regional safe asset, with substitution patterns primarily within a narrow set of euro area safe government bonds. The Bank for International Settlements – BIS report analyzes a detailed dataset of global bond holdings by #mutualfunds in the US and euro area to estimate demand elasticities for various bonds. The study uncovers that US Treasuries act as a global safe asset, with their return changes prompting broad adjustments across risky and emerging market bonds, whereas German Bunds function more regionally, primarily influencing euro area safe government bonds. These findings highlight segmentation in international bond markets and have implications for monetary policy transmission, particularly during times of financial stress.

Enjoyed kicking off my Friday morning with Lizzy Burden for an around-the-world 🌎 tour of the bond markets—starting in Japan, then the US, and wrapping up in Europe. Here are my key takeaways and a link to our conversation below. 🗾 Japan: The Bank of Japan hiked rates this week, driving 10-year JGB yields to their highest levels since the 1990s and signaling more rate hikes ahead. Despite strong growth and rising inflation, the Yen weakened in response, as the pace of tightening is expected to remain slow and gradual. 🗽 United States: We saw a whirlwind of data releases, but concerns about data quality persist due to the impact of the government shutdown. It’s important to focus on the direction rather than the magnitude of these surprises. While we are skeptical about the magnitude, the direction is consistent with our assessment of the trend. The gradual rise in the unemployment rate through November points to a cooling labor market, while the downside surprise in CPI inflation aligns with leading indicators of service inflation—suggesting further disinflation ahead. 🏰 Europe: ECB President Lagarde signaled increased two-way risk for policy, now that rates have reached their estimated neutral level of 2%. While we expect the ECB to remain on hold, core European government bond yields are under pressure as fiscal stimulus is anticipated to rise next year. 🔗 https://lnkd.in/eK8Gj3p6

Deutsche Bank Current State of European Bond Markets: Current State of European Bond Markets: -The European economy faces significant investment needs, especially for fostering innovation and improving competitiveness. -Banks dominate corporate credit provision in Europe, but the capacity of loans may not meet these needs. Corporate bond markets offer an alternative source of funding, though they remain underdeveloped compared to the U.S. -Debt securities issued by non-financial corporations in the EU totaled EUR 2 trillion as of Q2 2024, with most of it concentrated in France, Germany, and the UK. Differences Between Countries: -France leads in corporate debt issuance, with EUR 689 billion outstanding, which is similar to the U.S. in terms of debt-to-GDP ratio. -Germany lags behind, with only 6% of GDP represented by corporate debt, despite its large economy. Investors in Corporate Bonds: -Investment funds are the largest investors in euro-area corporate bonds, holding over one-quarter of the total debt. -Insurance companies and pension funds account for another significant portion of demand. -The European System of Central Banks (ESCB) holds about 14% of the euro-area corporate debt as of Q4 2023, though it is gradually reducing its holdings. Challenges and Future Prospects: -The corporate bond market is still minor compared to bank loans, but it has been growing, particularly since the financial crisis. -Fragmentation remains high, and further integration of European capital markets could improve liquidity, lower financing costs, and boost corporate access to funding. Outlook: -Strengthening European bond markets through better integration remains a key goal, and improving access to market-based products for private investors is high on the political agenda. -Future progress depends on overcoming legal and regulatory barriers, with the ultimate goal of creating a more unified and liquid European bond market.

📑 𝕁𝕦𝕤𝕥 𝕡𝕦𝕓𝕝𝕚𝕤𝕙𝕖𝕕 ''𝐂𝐨𝐫𝐞 𝐈𝐬𝐥𝐚𝐦𝐢𝐜 𝐅𝐢𝐧𝐚𝐧𝐜𝐞 𝐌𝐚𝐫𝐤𝐞𝐭𝐬 𝐀𝐫𝐞 𝐋𝐚𝐫𝐠𝐞𝐬𝐭 𝐄𝐌 𝐃𝐨𝐥𝐥𝐚𝐫 𝐃𝐞𝐛𝐭 𝐈𝐬𝐬𝐮𝐞𝐫𝐬'' US dollar debt issuance from emerging markets (EMs) was resilient and issuers from the Gulf Cooperation Council (GCC) countries, Malaysia, Indonesia and Turkiye accounted for just over half of such issuance in 1H25 (excluding China), Fitch Ratings says. Large financing needs, diversification goals and upcoming maturities are among the key drivers. Countries viewed as relative safe havens from the US trade war, such as those in the GCC, were beneficiaries of foreign inflows in 1H25. Market diversity via sukuk and ESG instruments is also expanding in EMs. The GCC debt capital market (DCM) crossed USD1 trillion outstanding in 1H25, when issuers from the region accounted for 35.5% of all EM dollar debt issuance. This is likely to grow further, driven by Saudi Arabia and the UAE, and by Kuwait’s re-entry to the DCM, likely later this year. The Saudi DCM will ... Malaysia’s DCM issuance is likely to slow further as the government maintains efforts to reduce federal debt. In Indonesia, DCM issuance should continue over 2H25, while in Turkiye modest growth is expected. Debt issuance in 2H25 will be supported by a lower oil price (2025F: USD70; 2026F: USD65), particularly for many OPEC members, and further interest rate declines. However, risks persist from .... Sukuk made up most of the DCM outstanding in Saudi Arabia (61.1%) and Malaysia (59.3%) as of end-1H25, and is significant in the UAE (21.9%), Indonesia (18%), Qatar (17.8%) and others. The pricing of comparable sukuk and bonds remained highly correlated in 2024. Fitch rates more than 70% of US dollar sukuk globally – the vast majority in EMs – with about 80% investment grade at end-1H25 and no defaults. Sukuk demand outpaced supply, supported by... ESG sukuk accounted for 41% of ESG dollar debt issuance in 1H25 in EMs, with the rest in bonds. EM liquidity conditions have improved since US tariff plans were announced in April 2025. In 1H25, EM dollar debt issuance exceeded ... There is renewed foreign investor interest in EMs, which we believe reflects a desire to diversify away from concentration in US assets given trade war uncertainties and the effects of a weaker dollar. Among the core Islamic finance markets, foreign investor ownership of domestic government debt is highest in... Inclusion of the GCC countries, Malaysia, Indonesia and Turkiye in global bond indices has also increased foreign investor demand. In the J.P. Morgan Government Bond Index-Emerging Markets, the collective share of Indonesia, Malaysia and Turkiye reached 21.4% at end-1H25. Saudi Arabian sukuk are on the radar for inclusion in this index, while the UAE’s status for the Emerging Market Bond Index is under review for 2026. Full comment: https://lnkd.in/dXam6nYJ

ADB - Asia Bond Monitor September 2025 This edition shows that financial conditions in emerging East Asia improved between June and August 2025, supported by continued monetary easing in the region and progress on trade agreements between the United States (US) and several regional economies. Positive sentiment was also buoyed by an expected US Federal Reserve policy rate cut in September, easing tensions regarding wider conflict in the Middle East, and the extension of the trade truce between the People’s Republic of China and the US. In most regional markets, government bond yields declined, risk premiums narrowed, and equity markets gained amid net equity portfolio inflows. Regional currencies remained broadly stable versus the US dollar. Supported by improved financial conditions, the local currency bond market in emerging East Asia expanded to a size of $28.6 trillion at the end of June on robust issuance of $3.1 trillion in the second quarter. During the same period, quarterly growth accelerated in the ASEAN+3 sustainable bond market, which reached a size of $955.3 billion. This edition features a special section on how sovereign sustainable bond issuances help improve liquidity and reduce yield spreads for corporate sustainable bonds.

BofA Global Research predicts that the emerging Europe, Middle East and African (EEMEA) region will issue $109 billion in hard-currency sovereign bonds this year, which would amount to 65% of all EM sovereign debt sales. Emerging market governments and corporates have already sold $55 billion of bonds in 2025, as issuers make a cash grab before the new Trump administration manages to fully unleash its policies. Risks for a downgrade to Romania's sovereign credit rating have increased, while Hungary's weak policy credibility leaves it with a volatile currency and vulnerability to downgrades. As one of the region's largest issuers, Turkey could see its sovereign credit rating improve towards end-2025 on the back of lower inflation and a smaller budget deficit, following an S&P upgrade in November 2024. South Africa, Oman, and Morocco could also experience ratings upgrades. My own two cents is that the EEMEA/CEEMEA region is the most important EM region, by virtue of its geographic location at the center of the world, the number of countries, and even by GDP (if we exclude China). EEMEA totals around 90-100 countries, though of course many of these haven't yet issued hard currency bonds: ~23 in Eastern Europe ~19 in MENA ~48 in Sub-Saharan Africa By comparison, the Asia-Pacific region has ~48 countries that the World Bank classifies as low, lower-middle, and upper-middle income, while Latin America and the Caribbean has only 33 countries. Looking at IMF nominal GDP data for 2022, CEEMEA's GDP is around $11.7 trillion, whereas EM Asia ex-China is $7.2 trillion and Latin America and the Caribbean is $5.9 trillion. CEEMEA is still bigger even if you strip out Russia's $2.2 trillion economy. Not to discount the importance of China and its $17.8 trillion economy (larger than ALL of CEEMEA!), or India, Brazil, and other countries in Asia and Latin America. But CEEMEA is where most of the action in emerging and frontier markets tends to happen, especially if we consider that China is a special case. Stay up to date: https://lnkd.in/dE5Un6MF