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Softer Data and Currency Weakness Inhibit Asian Bonds

Amid a surging dollar and upbeat US newsflow, Asian bond markets were hampered by currency declines amid regional weakness – notably in China.

SSGA Fixed Income Portfolio Strategists

In August 2023, the Markit iBoxx ABF Pan-Asia Index reversed the previous month’s gains, with a return of -2.08% on an unhedged basis in US-dollar terms. On a US-dollar-hedged basis, the index rose by +0.17%.

With the exception of Hong Kong, all Asian markets within the index delivered negative returns. Currency weakness was the primary factor driving the decline of the unhedged index, while local-currency returns were mixed. The US dollar saw renewed strength as economic data releases remained weak across most Asian economies, particularly in China. Meanwhile, newsflow was relatively stronger in the US.


Local Currency Bond Return

FX Return

Total Return (in USD)

Hong Kong
































Currency Peg Helps Soften the Hong Kong Dollar’s Decline

Hong Kong (+0.1%) saw positive local-currency bond returns, which were partially offset by a decline in the Hong Kong dollar. Given its currency peg to the US dollar, the fall in the Hong Kong dollar was reasonably modest compared to those experienced by other Asian currencies. Meanwhile, economic data, such as Purchasing Managers’ Index (PMI) surveys, imports, and retail sales, remained weak on aggregate, which supported the local-currency bond market.

Current Account Deficit Hampers the Indonesian Rupiah

A weakening Indonesian rupiah was a drag on Indonesian bonds (-1.06%), which also delivered modestly negative returns in local-currency terms. In line with increases elsewhere in the world, Indonesia’s local-currency bond yields saw a modest rise across various maturities. Unlike most Asian peers, economic releases such as PMI surveys and gross domestic product (GDP) growth data for the second quarter (Q2) of 2023 indicated resilient economic activity. However, Indonesia’s current account balance was weaker than expected, registering a deficit in Q2 2023 for the first time since the first half of 2021. This proved to be a headwind for the Indonesian rupiah.

Unexpected Policy Easing in China

In China (-1.41%), local-currency bond returns were positive as yields declined across various maturities, with medium-to-long-term yields falling to their lowest levels since 2020. This was driven by broad-based weakness in economic data, including PMI surveys, trade activity, industrial production, retail sales, and new loans. Consumer- and producer-price inflation also decreased. In response, the People’s Bank of China (PBOC) unexpectedly eased its monetary policy for the second time since May 2023, reducing the one-year medium-term lending facility and loan prime rates. The PBOC also injected cash into the economy via bond repurchase operations. However, a further depreciation in the Chinese yuan to the weakest level since 2007 led to negative returns in US-dollar terms.

Weaker Trade Data and Economic Growth in Malaysia

Malaysian local-currency bonds delivered a small positive return, but a significant depreciation in the Malaysian ringgit led to negative returns in US-dollar terms (-2.37%). Local-currency bond yields moved within a limited range even as economic releases, such as Q2 2023 GDP growth data, industrial production and trade activity, were below expectations. Notably, GDP growth was the slowest in two years, with Bank Negara Malaysia suggesting that economic expansion would be at the lower end of its forecast for 2023. Besides, a softer trade balance also underpinned the Malaysian ringgit’s weakness.

Inflation Remains a Challenge in the Philippines

In the Philippines, gains in local-currency bonds were unable to offset a decline in the Philippine peso, leading to negative US-dollar-denominated returns (-2.4%). Q2 2023 GDP growth data was significantly lower than anticipated, leading to a decline in the yields of bonds with medium-term maturities. Although consumer-price inflation for July 2023 was below market expectations, Bangko Sentral ng Pilipinas reiterated that inflation could remain stubbornly high, resulting in higher short-term bond yields.

Interest-Rate Hike as Thailand’s Central Bank Expects Higher Inflation

Thailand’s bonds delivered negative returns in local-currency and US-dollar-denominated terms (-2.53%). Like the Philippines, Q2 2023 GDP growth data was unexpectedly weak, while other economic releases, including PMI data, trade activity, and consumer-price inflation, were also below estimates. Despite this, bond yields increased as the Bank of Thailand raised interest rates to their highest level in nine years, anticipating a rebound in inflation throughout the remainder of 2023. The Thai baht still delivered negative returns in August 2023, as the balance of payments deteriorated.

Easing Growth and a Slight Dip in Consumer-Price Inflation

Singapore bonds also posted negative returns in local-currency and US-dollar-denominated terms (-2.69%). Like most Asian markets, economic data releases (retail sales and Q2 GDP growth) were weaker than expected, while consumer-price inflation was marginally lower than predicted. However, bond yields increased, especially at the longer end of the maturity curve, with the Singapore dollar also depreciating in line with the global trend.

Sharp Decline in the Value of the Korean Won

Korea was the worst-performing market (-3.61%) in August 2023. Although local currency returns were nearly flat, most of the decline was driven by a sharp depreciation in the Korean won. Trade data releases, especially imports, were particularly weak. Meanwhile, in a similar vein to its Asian peers, consumer-price inflation was lower than market expectations. The Bank of Korea kept interest rates unchanged, but its policy tone was less assertive than in previous months.

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