A group of East Asia & Pacific central banks – including New Zealand’s Reserve Bank – is closing its $US-denominated bond fund and transferring the investment to a local-currency bond fund.
The 11-member group of central banks & monetary authorities (EMEAP) said it set up its original Asian bond fund in 2003 as a stepping stone to this second one, which is intended to enhance development of a market in local-currency bonds in the region and offer members a diversified regional investment product for their reserves management.
The original fund is managed by the Bank for International Settlements on behalf of the group of central banks. It invests in $US-denominated bonds issued by sovereign & quasi-sovereign issuers in East Asia & Pacific economies other than Japan, Australia & New Zealand. The new fund, comprising the Pan-Asia Bond Index Fund & 8 single-market funds, is managed by private-sector fund managers with the Bank for International Settlements as the administrator. It invests in local currency-denominated bonds in economies other than Japan, Australia & New Zealand.
From 2003 to 2015, issuance of local currency-denominated bonds in Asia excluding Japan recorded a near 8-fold increase from about $US125 billion to more than $US1 trillion.
The central bank group decided in April the original fund had achieved its purpose and should be closed. The proceeds are being reinvested in the second fund over the course of several months, to ensure a smooth transition & minimal market impact.
Reserve Bank of NZ deputy governor Grant Spencer chairs the working group on financial markets and the bond fund oversight committee.
Attribution: Bank group release.