Global investment sentiment waned amid the sharp economic downturn triggered by the coronavirus disease (COVID-19). The governments and central banks of many economies launched fiscal stimulus packages and eased monetary policies to mitigate the economic impact of COVID-19. Emerging East Asian markets shifted to a more accommodative monetary environment, leading to a decline in short-term interest rates.1 The 2-year bond yield in nearly all regional markets trended downward between 28 February and 29 May. On the other hand, long-term interest rates, proxied by the 10-year bond yield, diverged based on economy-specific trends. The outbreak of COVID-19 soured investment sentiment in emerging East Asia. Equity markets suffered losses and currencies depreciated against the United States dollar for most markets in the region during the review period. Credit spreads widened for nearly all markets as risk aversion heightened. Global investors flocked to safehaven assets, pushing down the share of foreign holdings in most of the region’s local currency (LCY) bond markets.

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