Comments on "The rise of benchmark bonds in emerging Asia"

This paper investigates whether government policy can speed up the tipping process in the creation of benchmark bonds. The authors (Remolona and Yetman) examine four emerging market economies in Asia where authorities have actively fostered benchmark bonds – Indonesia, Malaysia, the Philippines and Thailand. The question the authors seek to answer is whether creating de jure benchmarks will lead to the creation of de facto benchmarks. To assess this, they use rankings based on relative yields, bid-ask spreads and the number of days for which quotes are available to assess the liquidity of bonds. They conduct a principal component analysis (PCA), using the loadings on the first PC to measure bond importance in price discovery. The liquidity measures are combined with price discovery measures to identify de facto benchmark bonds. The authors compare those bonds with those which the governments have chosen as de jure benchmarks. Their results show that the de jure benchmarks are often also the de facto benchmarks. The identified highly liquid bonds often have high factor loadings on the first PC of returns on bonds with similar maturities, consistent with them playing an important role in price discovery.