Asian central banks map out new bond fund

TOKYO: Asian central banks announced yesterday a framework for a new fund to invest in local currency bonds with a view to enhancing the bond markets in the region. 

Asian Bond Fund 2 (ABF2) will be the second phase of the Asian Bond Fund, a US$1bil vehicle launched last June by 11 central banks in the East Asian and Pacific region, which pooled some of their foreign reserves to buy dollar-denominated bonds issued by Asian governments and agencies. 

The Executives' Meeting of East Asia and Pacific Central Banks (EMEAP) said in a statement its new fund would promote other bond funds as well as enhance the underlying domestic and regional bond markets. 

The size of the new fund and the timing of its launch had not been decided, it said. 

“EMEAP members will be careful to limit the size of the total investment, so that it will not have any crowding-out effect on private sector investors,” it said. 

A Bank of Japan official told reporters the group would want to launch the fund within the year. 

Asian financial authorities have been stepping up regional cooperation after vulnerabilities were exposed by the outflow of overseas capital that triggered the Asian currency crisis in 1997-98. 

The initiative is in step with those by Asian finance ministries to beef up local bond markets and make the region more self-sufficient by harnessing Asia's vast savings for long-term investment. 

The new fund will consist of two parts: a Pan-Asian Bond Index Fund, which will invest in local currency bonds, and a Fund of Bond Funds, which will have a parent fund investing in a number of country sub-funds that buy local currency bonds. 

The Pan-Asian fund and the country sub-funds will be open to public investors other than EMEAP countries as well as private investors. 

The fund will be passively managed against a set of predetermined benchmarks covering local currency bonds issued by sovereign and quasi-sovereign issuers in EMEAP countries, except for Japan, Australia and New Zealand. – Reuters 

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