Impacts of US Monetary Normalisation on Corporate Bond Market in Emerging Asia

Abstract

This paper studies the potential impacts of US monetary normalisation on the emerging Asian corporate bond market, which has experienced explosive growth in recent years and become a crucial source of financing for the regional corporate sector. After controlling for global and economy-specific variables, we find that increase in US Treasury yields has the effects of reducing issuance, though only moderately, and shortening tenor in the corporate bond markets in emerging Asia. While no direct impact of US Treasury on corporate bond pricing is found, there is likely to be an indirect impact through domestic sovereign bond yields, in light of the significant pass-through from domestic sovereign to corporate bond yields, as well as evidence found on the pass-through from US Treasury yields to sovereign yields in the region in previous studies.