The Hong Kong Monetary Authority said yesterday Asian central banks were still working on the second Asia Bond Fund which would target local currency Asian bonds. Details such as size, structure, participants, the investing instruments and timetable, however, had not been determined, said Julia Leung, an executive director of the external department at the HKMA. 'It is still at a preliminary stage,' she said. The first Asia Bond Fund was set up last year with 11 Asian central banks pooling a portion of their reserves to invest US$1 billion in Asia's sovereign and quasi-government bonds denominated in US dollars. The 11 participants of the first fund - managed by Bank for International Settlements - were Australia, China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea and Thailand. These central banks hoped the fund would keep Asian savings within the region and help develop the local currency bond market in the region. But some said the fund size was too small and seemed to have done little to the market. Ms Leung rebuffed the criticism, saying it was the purpose of the central banks to keep the size small. 'The first step is to show the central banks' initiatives to invest in Asia and it is made for the second step to invest in local currency bond market trying to use it to break down market impediments,' Ms Leung said. Asia Pacific Financial Markets Research Center executive director S. Ghon Phee, however, warned the second fund would expose itself to credit risk and exchange-rate risk. As such, he suggested the creation of an Asian Bond Bank, which would help shoulder the risks. The bank would be modelled on the municipal bond banks in Canada and the US, by buying Asian government or corporate bonds and repackaging them for sale to Asian investors, he said.