Asian Bond Prices Climb Amid Currency Strength

The iBoxx ABF Pan Asia Bond Index extended its positive performance into the second month of 2026, with the US-dollar unhedged index (+1.56%) supported by broad-based strength across Asian currencies, while the US-dollar hedged index rose by a solid 0.91%.

Bond yield movements across the region were mixed, reflecting divergent domestic economic conditions and monetary policy paths. On average, 10-year government bond yields fell by around 13 basis points. Yield declines were most pronounced in Hong Kong (-37 basis points) and Thailand (-29 basis points), followed by South Korea (-16 basis points), the Philippines (-16 basis points), Singapore (-13 basis points), and Malaysia (-1 basis point), while Indonesia was a notable outlier, with yields rising by nine basis points. On the policy front, only a few Asian central banks moved toward easing: Bangko Sentral ng Pilipinas cut its benchmark rate by 25 basis points to 4.25% at its February 2026 meeting, and the Bank of Thailand surprised markets with a 25 basis points rate cut to 1.0%, defying expectations of a pause, while other major Asian central banks maintained unchanged policy rates.

Surprise Rate Cut in Thailand

Thailand (USD Unhedged: 3.3%)
Thailand’s 10 year government bond yield declined by 29 basis points in February 2026, while Thai-baht appreciation contributed 1.1% to overall returns. Economic data presented a mixed picture: the S&P Global Thailand Manufacturing Purchasing Managers’ Index (PMI) survey rose to 53.5 in February 2026 from 52.7 in January 2026, indicating continued improvement in manufacturing activity following the sharp slowdown earlier in the year, although export demand remained weak. Inflation stayed in negative territory, with headline consumer prices contracting by 0.88% year on year (y/y) in February 2026, deepening from a 0.66% decline in January 2026, largely due to lower energy prices and ongoing government cost of living measures, while core inflation remained modestly positive. Against this backdrop, the Bank of Thailand unexpectedly cut its benchmark interest rate by 25 basis points to 1.0% at its February 2026 policy meeting, defying market expectations of a hold.

Bangko Sentral ng Pilipinas Lowers Borrowing Costs

Philippines (USD Unhedged: 2.8%)
The Philippines’ 10 year government bond yield declined by 16 basis points in February 2026, while Philippine-peso movements contributed a modest positive return of around 2.1% amid a firmer currency. Annual inflation accelerated to 2.4% in February 2026 from 2.0% in January 2026, driven primarily by higher food and housing related prices. The S&P Global Philippines Manufacturing PMI survey rose to 54.6 from 52.9, its strongest reading since late 2017, signaling a sharp improvement in manufacturing momentum. On the policy front, Bangko Sentral ng Pilipinas delivered a 25-basis-point policy rate cut in February 2026, maintaining a cautious, data-dependent easing stance.

China’s Economic Backdrop Remains Uneven

China (USD Unhedged: 1.6%)
Chinese financial markets set a relatively steady tone at the outset of February 2026, with the Chinese yuan appreciating by 1.36% against the US dollar to close at 6.862. Government bond performance was mixed in February 2026, as the 10 year yield remained broadly stable while the two year yield rose by around two basis points, signaling mild bear flattening (where short-term yields rise more quickly than long-term yields). Against this backdrop, China’s economic momentum remained uneven, with official PMI survey readings stuck in contractionary territory, partly distorted by seasonal effects from the extended Lunar New Year holiday. The official manufacturing PMI survey edged down to 49.0 in February 2026 from 49.3 in January 2026, marking a second consecutive month of contraction as softer production, subdued domestic demand, and a sharp deterioration in new export orders continued to weigh on manufacturing sectors. In contrast, private-sector PMI surveys (S&P Global/RatingDog) rose above 52 into expansionary territory, underscoring greater resilience among export oriented and private firms and highlighting a widening divergence within the manufacturing landscape. Meanwhile, inflation dynamics improved meaningfully, with the headline consumer price index (CPI) accelerating to 1.3% y/y – the fastest pace in over three years – driven by holiday-related spending on consumption, travel, and services, while core CPI strengthened to 1.8% y/y, pointing to a tentative improvement in underlying demand conditions. At the same time, producer price deflation moderated, falling by 0.9% y/y, the slowest contraction in more than a year. Policy settings remained steady, with the People’s Bank of China keeping the one year and five year loan prime rates unchanged at 3.0% and 3.5%, respectively, reinforcing a preference for targeted, structural support over broad-based easing.

Malaysian Ringgit Continues Its Upward Trajectory

Malaysia (USD Unhedged: 1.6%)
Malaysia’s 10 year government bond yield remained broadly stable in February 2026, while the Malaysian ringgit’s continued appreciation contributed approximately 1.3% to returns. Headline inflation was unchanged at 1.6% y/y in January 2026, matching December 2025’s reading and market expectations, as price pressures stayed moderate across most categories. The S&P Global Manufacturing PMI survey eased to 49.3 in February 2026 from 50.2 in January 2026, returning to contractionary territory for the first time in four months amid softer output and new orders, although business sentiment remained broadly optimistic. Meanwhile, the unemployment rate declined to 2.9% in January 2026 from 3.1% a year earlier, marking its lowest level since November 2014.

South Korea Maintains Policy Caution

South Korea (USD Unhedged: 1.2%)
South Korea’s 10 year government bond yield declined by 16 basis points in February 2026, while a slight appreciation of the Korean won added 0.1% to returns. Inflation remained steady at 2.0% y/y in February 2026, unchanged from January 2026 and in line with the Bank of Korea’s target, indicating contained price pressures. Manufacturing activity stayed in expansionary territory, although momentum softened marginally, as the S&P Global Manufacturing PMI survey edged down to 51.1 in February 2026 from 51.2 in January 2026, supported by firm output and new orders despite ongoing employment contraction. The Bank of Korea kept its base rate unchanged at 2.5% for a sixth consecutive meeting, reaffirming a cautious policy stance amid stable inflation, improving growth prospects, and lingering financial stability risks.

Resilient Growth and Steady Business Inflows

Hong Kong (USD Unhedged: 1.1%)
Hong Kong’s 10 year government bond yield declined by around 37 basis points in February 2026, while Hong Kong-dollar movements detracted approximately 0.2% from returns. Annual inflation eased to 1.1% y/y in January 2026, down from 1.4% previously, as price pressures moderated despite continued increases in transportation and services costs. Economic growth remained resilient, with preliminary data indicating that Hong Kong’s gross domestic product (GDP) growth had expanded by 3.8% y/y in the fourth quarter of 2025, slightly above the revised 3.7% growth recorded in the third quarter of 2025. Business conditions remained in expansionary territory, with the S&P Global Hong Kong SAR PMI survey rising to 53.3, supported by steady new business inflows despite some moderation from a six month high in January 2026. Meanwhile, Hong Kong’s seasonally adjusted unemployment rate edged up to 3.9% in the three months ending January 2026, marking the highest level since September 2022.

Growth Improves, But Inflation Remains Contained

Singapore (USD Unhedged: 1.0%)
Singapore’s 10 year government bond yield declined by 13 basis points in February 2026, while Singapore-dollar movements added a small positive contribution (0.2%) to returns. Annual inflation rose to 1.4% in January 2026, up from 1.2% in December 2025, marking the highest level since late 2024 but remaining well contained. Manufacturing activity continued to improve, with the PMI survey increasing to 50.6 in February 2026 from 50.5 in January 2026, the strongest reading in nearly a year and firmly in expansionary territory. The seasonally adjusted unemployment rate remained unchanged at 2.0% in the fourth quarter of 2025, highlighting continued labor market resilience. Meanwhile, the benchmark interest rate (SORA) hovered around 1.0%, staying below its long-term average of approximately 1.25%, supporting accommodative financial conditions.

Indonesian Consumer Prices Rise Sharply

Indonesia (USD Unhedged: 0.5%)
Indonesia’s 10 year government bond yield rose by nine basis points in February 2026, while Indonesian-rupiah movements contributed modestly, adding around 0.1% to returns. Annual inflation accelerated to 4.76% y/y in February 2026, up from 3.55% in January 2026, marking the highest level since March 2023 and moving above Bank Indonesia’s target range, largely reflecting food price pressures and base effects. Economic momentum remained firm, with the S&P Global Manufacturing PMI survey rising to 53.8 in February 2026 from 52.6 in January 2026, signaling a seventh consecutive month of expansion and the fastest pace of factory activity since early 2024, supported by stronger domestic demand and output growth. Meanwhile, Bank Indonesia kept the benchmark interest rate unchanged at 4.75% at its February 2026 meeting, maintaining a cautious policy stance as it prioritized Indonesian rupiah stability amid elevated inflation and ongoing global financial volatility.