The prospect of the Federal Reserve's much-anticipated taper is hurting Asian bond markets, a report from Asian Development Bank has found.
According to the report, local bond markets in Asia are still expanding, but at a more modest pace, as a direct result of investors being more cautious amid greater volatility and weaker growth in the region.
Emerging markets have taken a battering in recent months as fears of a reduction in the Fed's $85-billion-a-month bond buying program prompted sharp capital flows from the region.
Iwan Azis, head of the office of regional economic integration at the Asian Development Bank, told CNBC on Thursday that the current situation is not as dire as the 1997-1998 Asian financial crisis, when Asian bond yields spiked as investor cash exited the region, but warned that "tough times certainly lie ahead."
"Asia's bond markets - and its borrowers - are better placed to stand up to this latest round of global volatility than they were in 1997-1998 but tough times certainly lie ahead," said Azis.
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According to the report, in contrast with market conditions in 1997-1998, governments and companies now hold more of their debt in local rather than foreign currencies and they hold longer-dated debt than before, meaning they are less vulnerable to currency depreciation and sudden shifts in borrowing costs and investor appetite.
However, the market is expanding at a slower pace, the report found. At the end of the second quarter of this year, there was $6.8 trillion in local currency bonds outstanding in emerging East Asia, a 1.7 percent on quarter increase, but a slower growth rate than the 2.9 on quarter rise in the first quarter.