The Role of Different Institutional Investors in Asia-Pacific Bond Markets during the Taper Tantrum

30 Pages Posted: 22 May 2019

See all articles by David T. Ng

David T. Ng

Johnson College of Business

Ilhyock Shim

Bank for International Settlements (BIS)

Jose Maria Vidal Pastor

Bank for International Settlements (BIS)

Date Written: April 2019

Abstract

Emerging markets have grown rapidly over the past two decades, and sovereign and corporate borrowers are increasingly reliant on bond financing. Given widespread concern over what will happen to emerging market bonds as central banks in major advanced economies start to unwind quantitative easing policies and raise interest rates, this paper examines the behaviour of different investors buying and selling emerging market government and corporate bonds around the 2013 taper tantrum. Using detailed security-level data on bond holdings by institutional investors from Thomson Reuters eMAXX, we find that mutual funds – which are subject to outflow pressures – tended to liquidate their bond holdings of emerging Asian bond markets, while insurance companies, annuities and pension funds – all of which are not subject to outflow pressures – bought extra bonds in these markets. We also find some evidence of global retrenchment during the taper tantrum. In particular, local (Asiadomiciled) funds bought emerging Asian bonds, and global (US-, UK- and Europedomiciled) funds sold these bonds. These results suggest that policymakers need to foster a stable domestic investor base and make efforts to better understand the behaviour and incentives of different bond investors.

Full Publication: Asia-Pacific Fixed Income Markets: Evolving Structure, Participation and Pricing

Keywords: Asia-Pacific, asset managers, fixed income investment, institutional investors, taper tantrum

JEL Classification: G11, G15, F21

Suggested Citation

Ng, David T. and Shim, Ilhyock and Pastor, Jose Maria Vidal, The Role of Different Institutional Investors in Asia-Pacific Bond Markets during the Taper Tantrum (April 2019). BIS Paper No. 102m. Available at SSRN: https://ssrn.com/abstract=3390965

David T. Ng (Contact Author)

Johnson College of Business ( email )

301G Warren Hall, Cornell University
Ithaca, NY 14850-1967
United States
6072550145 (Phone)

Ilhyock Shim

Bank for International Settlements (BIS) ( email )

78F, Two International Finance Centre
8 Finance Street, Central
Hong Kong, n/a n/a
Hong Kong

HOME PAGE: http://www.bis.org/author/ilhyock_shim.htm

Jose Maria Vidal Pastor

Bank for International Settlements (BIS)

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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