Local and offshore demand for emerging East Asia’s local currency bonds is rising again and should continue given strong economic growth prospects in the region, according to the Asian Development Bank’s (ADB) latest Asia Bond Monitor.

“Most emerging East Asia bond markets have regained their bounce,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration. “Thailand’s bonds though could buck the trend given recent political upheavals and investors there are likely to be cautious for some time.”

Despite the recent improvements, the Asia Bond Monitor warns that markets could still be jolted by the ongoing tapering in US quantitative easing, the slowdown in economic growth in the People’s Republic of China (PRC) or moves by the European Central Bank to counter the threat of deflation. Only by taking the lead in implementing better regulation and oversight of the financial system can Asia mitigate these risks.

Emerging East Asia comprises China, Hong Kong, Indonesia, Republic of Korea, Malaysia, the Philippines, Singapore, Thailand and Viet Nam.

Bond yields—which fall as demand increases—declined in most economies in the first four months of the year, dropping most in Indonesia, Thailand, and Viet Nam.

ADB noted that investors in Thai bonds are now on the sidelines and yields could rise going forward. Meanwhile, yields in the Philippines went up in January through April amid rising inflation.

The markets also continue to grow in size with $7.6 trillion in bonds outstanding in the nine economies at the end of March, up 2.1% on the quarter and 9.5% higher than a year earlier.

Viet Nam’s was the fastest growing market on a quarterly basis while Indonesia’s market grew fastest on an annual basis.

Thailand had $281 billion in outstanding baht-denominated bonds as of the end of March, 1.2% more than at the end of December 2013 and 5.7% more than at the end of March 2013.

The report said the region also continues to see encouraging developments within the bond markets. It points to China's recent decision to auction CNH15 billion worth of sovereign bonds in Hong Kong as part of its efforts to internationalize the renminbi.