A special feature in the BIS Quarterly Review of June 2004 profiled the Asian local currency bond markets as a potential asset class, contrasting their considerable capitalisation with their mixed liquidity. The article found that larger markets with larger issues saw more trading at narrower bid-ask spreads. For a market of a given size, concentration of holdings among investors depresses liquidity. A broader investor base might thus be expected to improve liquidity, particularly at times of stress (Jiang and McCauley (2004)). Foreign investors might find these markets’ recent performance attractive. Half of them returned more than US Treasury securities of similar duration on an unhedged basis from January 2001.
