Insights

Asian Bond Yields Fall by 9 bps on Average in August

After briefly consolidating in July 2025, Asian bonds regained momentum in August 2025. Support came from falling yields across most local-currency markets and US-dollar weakness amid expectations of US Federal Reserve rate cuts.

September 28, 2025

State Street Investment Management Fixed Income Portfolio Strategists

The iboxx Pan-Asia Index (US-dollar unhedged) returned +1.3% in August 2025, led by a 0.4% strengthening of Asian currencies against the US dollar. Index returns were positive in hedged terms (+0.9%) as Asian bond yields, on average, fell by nine basis points during the month.

The most significant yield declines were observed in Singapore (-26 basis points), Indonesia (-21 basis points), and Thailand (-21 basis points). Only Hong Kong and South Korea saw their 10-year yields move higher. Central-bank easing continued in August 2025, with policy rate cuts implemented in the Philippines, Thailand, and Indonesia, further supporting the bond market.

Market	Local Currency Bond Return	FX Return	Total Return(in USD)
Philippines	1.30%	1.80%	3.10%
Thailand	2.10%	0.90%	3.00%
Singapore	2.20%	0.70%	2.90%
Indonesia	1.70%	-0.20%	1.50%
Malaysia	0.60%	0.60%	1.20%
Hong Kong	-0.20%	0.80%	0.60%
China	-0.40%	0.80%	0.40%
Korea	-0.10%	-0.20%	-0.30%

Philippine Central Bank Cuts Rates to Almost Three-Year Low

Philippines (USD Unhedged: 3.1%)
The Philippines’ 10-year yield declined by 16 basis points in August 2025, but the Philippine peso strengthened significantly (+1.8%), resulting in positive US-dollar-unhedged returns. Inflation rose to +1.5% year on year (YoY) after a five-percentage-point drop in July 2025, driven by higher food, beverage, and household costs. Gross domestic product (GDP) growth was up by 5.5% YoY in the second quarter of 2025. Bangko Sentral ng Pilipinas cut its policy rate by 25 basis points to 5% in August 2025, in line with expectations, marking the lowest level since November 2022.

Lower Borrowing Costs in Thailand

Thailand (USD Unhedged: +3.0%)
Thailand’s 10-year yield fell by 21 basis points in August 2025, while the Thai baht appreciated by a modest 0.9% during the month. Consumer prices fell by 0.79% YoY in August 2025, marking the fifth consecutive month of deflation and remaining below the central bank’s 1%–3% target range. Costs continued to decline for transportation and housing, while core inflation eased to +0.81% YoY. At its August 2025 meeting, the Bank of Thailand cut its policy rate by 25 basis points to 1.5%. The central bank expects the economy to grow by around 2.5% in 2024, 2.3% in 2025, and 1.7% in 2026, reflecting a downward revision from earlier projections.

Growth in Singapore Edges Higher

Singapore (USD Unhedged: 2.9%)
Singapore’s 10-year yield was down by 26 basis points in August 2025, while the Singapore dollar strengthened by 0.7%. Inflationary pressures remained muted, with the headline inflation rate easing to +0.6% in July 2025 from +0.8% in June 2025. Core inflation also moderated to +0.5%, reflecting subdued domestic price growth. Meanwhile, Singapore’s GDP growth for the second quarter of 2025 was revised slightly higher to 4.4% YoY from 4.3%, supported by robust expansion in the manufacturing sector. On the monetary-policy front, the Monetary Authority of Singapore maintained its stance in July 2025, following policy easing in both January 2025 and April 2025, which involved reducing the slope of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band.

Unexpected Rate Reduction in Indonesia

Indonesia (USD Unhedged: +1.5%)
Indonesia’s 10-year yield declined by 21 basis points in August 2025, while the Indonesian rupiah weakened by 0.2% against the US dollar amid a broad-based US-dollar rebound. Headline inflation eased slightly to +2.31% in August 2025 from +2.37% in July 2025, which had been its highest level since June 2024. Core inflation rose by 2.17% YoY. GDP growth for the second quarter of 2025 accelerated to 5.12% YoY, surpassing the expected 4.8% and improving from the 4.87% we saw in the first quarter of 2025. In a surprise move, Bank Indonesia cut the benchmark rate by 25 basis points to 5% at its August 2025 policy meeting, following a similar reduction in July 2025 and defying market expectations for a pause. The decision reflects confidence that inflation will remain within the +2.5% (± 1%) target range for 2025–2026, alongside a stable Indonesian rupiah and continued efforts to support economic growth.

Malaysia’s Economy Remains Resilient

Malaysia (USD Unhedged: +1.2%)
Malaysia’s 10-year yield edged up by two basis points in August 2025, while the Malaysian ringgit appreciated by 0.6% during the month, supported by a softer US dollar and robust domestic fundamentals. Bank Negara Malaysia (BNM) maintained its overnight policy rate at 2.75% during its August 2025 policy meeting, in line with market expectations. BNM reiterated that its monetary stance remains “appropriate and supportive” as inflation is still subdued. Malaysia’s annual inflation rate inched up to +1.2% in July 2025, while the economy expanded by 4.4% YoY in the second quarter of 2025.

Healthy Exports Keep Hong Kong GDP on Track

Hong Kong (USD Unhedged: +0.6%)
Hong Kong’s 10-year yield rose by one basis point in August 2025, while the Hong Kong dollar appreciated slightly (+0.8%). Inflation remained moderate at +1% YoY in July 2025, the lowest since June 2021, while GDP growth data for the second quarter of 2025 aligned with the preliminary estimates of 3.1%, driven by strong exports and a modest domestic recovery. After the Hong Kong Monetary Authority maintained its base rate at 4.75%, the government retained its 2025 growth forecast at 2%–3%, with expectations of moderation in the second half of 2025 due to external headwinds.

Stimulus Optimism Drives Confidence in China

China (USD Unhedged: +0.4%)
China’s manufacturing sector showed signs of recovery in August 2025, with the official Purchasing Managers’ Index (PMI) survey rising to 50.5—the highest level since March 2025. The uptick was driven by growth in new orders and purchasing activity, which supported overall output expansion. However, firms remained cautious about employment, opting to reduce headcount amid lingering uncertainties. The national unemployment rate edged up to 5.2% in July 2025, while consumer prices remained unchanged YoY, reflecting subdued domestic demand. On the trade front, exports grew by 4.4% YoY in August 2025, slightly below expectations, while imports were up by 1.3% YoY. Fixed asset investment increased by 1.6% YoY, missing an anticipated 2.7% rise. China is urging the Association of Southeast Asian Nations (ASEAN) to finalize an upgraded free-trade agreement by the end of 2025, aiming to counter US tariffs and boost market access. Market sentiment was supported by expectations for further stimulus measures, and the effect of an anti-involution campaign (to tackle price wars and unfair competition) provided stability to the Chinese yuan. The People’s Bank of China maintained its key lending rates at historic lows for the third straight month, keeping the one-year loan prime rate at 3% and the five-year mortgage reference rate at 3.5%. In the bond market, the 10-year yield hovered around 1.70%-1.78%, ending the month at 1.79%—up by seven basis points—while the two-year yield declined by two basis points.

Slight Improvement in South Korean Growth

South Korea (USD Unhedged: -0.3%)
South Korea’s 10-year yield rose by three basis points in August 2025, while the South Korean won depreciated by 0.2%. Inflation hovered near +1.7%, falling short of the expected +2%. The Bank of Korea kept its policy rate unchanged at 2.5% in August 2025, marking a second pause since May 2025’s rate cut, in line with expectations. GDP growth for 2025 was revised slightly higher to 0.9% from 0.8%, while the 2026 forecast remains steady at 1.6%. Inflation is projected at +2% for 2025 and +1.9% for 2026, both marginally higher than previous estimates.

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