Assessing Bond Market Integration in Asia

Abstract

Development of the local bond markets has been a top priority for financial reforms in the region after the Asian financial crisis. Various initiatives have also been taken to foster the development of the regional bond market. This paper looks into the degree of integration of sovereign (government) bond markets in Asia. It provides a survey of indicators and measures to monitor the development, measure progress and assess the state of bond market integration in the region. Our empirical results broadly show that there is only weak bond market integration in the region and very little progress has taken place since 2003. The apparent lack of progress may be due to the "local" or "idiosyncratic" factors in some Asian economies.

Keywords: Financial integration, Kalman filter, Cointegration, Synchronisation, Dynamic correlation

JEL Classification: C13, C22, F36, G15