Insights

Asian Bonds Ease Following a Solid First-Half Run

After strong gains in the first half of the year, Asian bonds consolidated in July 2025. The Markit Pan-Asia Index (USD-unhedged) returned -0.7% in the month, led by a 1.4% decline in Asian currencies against the US dollar. This modest currency retracement followed a strong period of performance against the US dollar in the first half of 2025.

September 2, 2025

State Street Investment Management Fixed Income Portfolio Strategists

Index returns were positive in hedged terms (+0.7%) as 10-year Asian bond yields fell by an average of four basis points (bps) during the month, with the most significant declines seen in Malaysia (-14 bps), Philippines (-11 bps) and Thailand (-10 bps). Only Hong Kong saw its 10-year yield rise in line with the global trend. Meanwhile, central banks in Indonesia and Malaysia reduced their policy rates during the month.

Market	Local Currency Bond Return	FX Return	Total Return(in USD)
Thailand	1.3%	-0.6%	0.7%
Hong Kong	0.1%	0.0%	0.1%
Malaysia	0.8%	-0.9%	-0.1%
Indonesia	1.2%	-1.3%	-0.1%
Singapore	1.0%	-1.6%	-0.6%
China	-0.2%	-0.4%	-0.6%
Korea	0.5%	-2.7%	-2.2%
Philippines	0.7%	-3.2%	-2.5%

Ongoing Deflation in Thailand

Thailand (USD Unhedged: +0.7%): Thailand’s 10-year yield declined by 10 bps in July 2025, while the Thai baht depreciated by a modest 0.6% during the month. Consumer prices fell by 0.7% year on year (YoY) in July 2025, marking the fourth consecutive month of deflation, driven by lower energy costs, government subsidies, and abundant food supply. Core inflation eased to +0.84% YoY, the slowest in six months. Investors expect two policy rate cuts of 1.25% by the end of 2025 to counter weak price pressures and sluggish growth.

Hong Kong Signals a Consistent Policy Position

Hong Kong (USD Unhedged: +0.1%) Hong Kong’s 10-year yield rose by 10 bps in July 2025, while the Hong Kong dollar retained its peg to the US dollar. Inflation remained moderate at +1.4% YoY (vs. +1.7% expected and +1.9% prior), while retail activity grew at a better-than-anticipated pace (+1.9% YoY vs. -3.7% expected). The Hong Kong Monetary Authority maintained its base rate at 4.75%, in line with the US Federal Reserve, signalling a steady policy stance amid global volatility.

Growth-Focused Rate Cut in Malaysia

Malaysia (USD Unhedged: -0.1%) Malaysia’s 10-year yield fell by 14 bps in July 2025, the largest drop among the economies in the Markit Pan-Asia Index, while the Malaysian ringgit declined by 0.9% during the month. Bank Negara Malaysia cut its overnight policy rate by 25 bps to 2.75% in July 2025 – the first cut in five years – to support growth amid rising global trade uncertainty. Inflation remained moderate, averaging +1.4% in the first half of 2025, with full-year expectations anchored by subdued global cost pressures.

Bank Indonesia Lowers Borrowing Costs

Indonesia (USD Unhedged: -0.1%) Indonesia’s 10-year yield declined by six bps in July 2025, while the Indonesian rupiah lost 1.3% against the US dollar amid a broad-based US-dollar rebound. Headline inflation accelerated to +2.37% YoY in July 2025 from +1.87% in June 2025, driven by seasonal food price increases and transportation costs. However, inflation remains within Bank Indonesia’s +1.5–3.5% target range. Core inflation moderated to +2.32%, signaling weak domestic demand. Bank Indonesia unexpectedly cut the policy rate by 25 bps to 5.25% at its July 2025 meeting, the fourth reduction since September 2024. The central bank governor noted there was room for further interest-rate reductions amid low inflation that is expected to continue into 2026, a stable Indonesian rupiah and a deteriorating global growth outlook.

Slower Growth Expected in Singapore

Singapore (USD Unhedged: -0.6%) Singapore’s 10-year declined by 10 bps in July 2025, while the Singapore dollar fell by 1.6%. Inflation remained subdued, with both headline and core price rises averaging +0.8% and +0.6%, respectively, for two months, well below the +1.0% threshold. Gross Domestic Product (GDP) growth rose by 4.3% YoY in the second quarter of 2025, but the Monetary Authority of Singapore (MAS) projects a slowdown in the second half of 2025 due to fading front-loaded demand and tariff-related uncertainty. The MAS kept its policy stance unchanged in July 2025 after two reductions earlier this year, maintaining the current Singapore Dollar Nominal Effective Exchange Rate Index (S$NEER) appreciation path. The MAS also signaled a more balanced approach, with further easing unlikely unless growth sharply deteriorates.

No Change to China’s Policy Rates

China (USD Unhedged: -0.6%) Chinese economic data releases remained mixed in July 2025. While second-quarter GDP growth was surprisingly high (+5.2% YoY vs. +5.1% expected), there was a slowdown compared to the levels seen in the first quarter of 2025 (+5.4%). Purchasing Managers’ Index (PMI) survey data indicated a slight contraction in manufacturing, while service activity showed a marginal expansion. Trade data also remained slightly better than expected with exports rising by 5.8% YoY, despite tariff headwinds, and stronger than the +5.0% anticipated by the market. Imports rose by 1.1% YoY vs. +0.3% predicted. However, retail sales were soft, gaining 4.8% YoY vs. +5.3% expected, while fixed-asset investments also were surprisingly weak (+2.8% YoY ex-rural vs. +3.6% expected). The People’s Bank of China kept its key policy rates unchanged, maintaining a ‘moderately loose’ policy stance as deflationary pressures persisted, with producer price inflation continuing to decline at the fastest pace since the first half of 2023. China bond yields remained decoupled from the rest of the world and remained in consolidation mode. The two-year yield rose by seven bps during the month to close at 1.44% while the 10-year yield was up by six bps to close at 1.71%. This was within the second percentile of past 20-year range.

Soft Exports and Domestic Demand

South Korea (USD Unhedged: -2.2%) South Korea’s 10-year yield remained broadly unchanged in July 2025, while the South Korean won depreciated by 2.7%. Inflation hovered near +2.1%, consistent with the Bank of Korea’s forecast. The central bank held its policy rate steady in July 2025 after a May 2025 cut, balancing growth concerns with financial-stability risk, against a backdrop of rising household debt and a strong property market. At its meeting in May, the Bank of Korea’s GDP growth projections for 2025 were revised down to +0.8% from earlier projections of +1.5%, reflecting weak exports and domestic demand.

Notable Weakness in the Philippine Peso

Philippines (USD Unhedged: -2.5%) The Philippines’ 10-year yield declined by 11 bps in July 2025, but the Philippine peso weakened significantly by 3.2%, resulting in negative USD-unhedged returns. Inflation dropped to +0.9% YoY, the lowest in nearly five years, driven by falling housing and food costs. Bangko Sentral ng Pilipinas had earlier cut its policy rate by 25 bps in June 2025 to 5.25%, and markets expect further easing as inflation remains well below the central bank’s target.

Footnotes

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