Facilitating Foreign Exchange Risk Management for Bond Investments in ASEAN+3
Bond investors typically have a long position in local currency bond markets. To manage their foreign exchange (FX) risk, they may want to hedge that exposure for a period of time. They also want to be sure they can easily convert the local currency to dollars upon the sale of a bond. This study reviews the FX and FX hedging markets in ASEAN+3 as they relate to cross-border investments in local currency bonds, and makes recommendations to facilitate the development of the markets and FX risk management.
Local Currency Bonds and Infrastructure Finance in ASEAN+3
The need for infrastructure investment among ASEAN+3 members is well documented, with estimates for needed investment through 2020 reaching as high as US$550 billion. Local currency financing of infrastructure projects has the important advantage of avoiding the currency risk that can arise when a project generating revenues in the domestic currency has foreign currency-denominated debt service requirements. This study was undertaken under ABMI and funded by the Government of the PRC. It addresses two key questions: (i) Why is local currency bond financing not more widely used for infrastructure projects in ASEAN+3? and (ii) What can be done to promote infrastructure bond financing?