Emerging East Asia’s local currency bonds have performed well so far in 2014 but an earlier-than-anticipated US rate hike, a slowing property market in China, and higher risk aversion and inflation due to Middle East tensions could undermine that, according to a newly released report from the Asian Development Bank (ADB).

“Asia looks well placed to face any volatility but the risks are definitely rising,” Head of ADB’s Office of Regional Economic Integration Iwan J. Azis said in a press release on September 23. “Higher US interest rates and a stronger dollar could also make it tougher for the rising number of US dollar borrowers to service their debt.”

ADB’s latest quarterly Asia Bond Monitor shows that as of the end of June, there were 7.9 trillion USD in outstanding bonds in emerging East Asia, 2.5 percent more than at the end of March and 9.3 percent more than at the end of June 2013.

Local currency bond issuance totaled 1.1 trillion USD in the second quarter, up from 852 billion USD in the second quarter. Meanwhile, sales of bonds denominated in US dollars, euros, or yen in January through July was 121.4 billion USD, suggesting the region will set another record for annual issuance.

According to ADB, emerging East Asia comprises China, Hong Kong (China), Indonesia, the Republic of Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam.

Vietnam was the fastest growing local currency bond market, both on a quarterly and an annual basis. However, China remains the largest market in Asia after Japan, with 4.9 trillion USD in outstanding bonds. That marked a 3.4 percent on-quarter rise and a 10.8 percent annual rise, largely due to the increase in outstanding policy bank bonds and local corporate bonds.-VNA