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Asian Bond Yields Continue Their Upward Trend

Asian bond yields were elevated in October 2023 as upbeat economic data led investors to anticipate a higher-for-longer interest-rate environment.


SSGA Fixed Income Portfolio Strategists

In October 2023, the Markit iBoxx ABF Pan-Asia Index returned -0.88% on an unhedged basis in US-dollar terms. On a US-dollar hedged basis, the index fell by -0.34%.

Local-currency bond returns were modestly negative as Asian local-currency yields increased further. Meanwhile, Asian foreign exchange also fell slightly. Similar to the previous month, the region’s economic data, particularly in China, was unexpectedly positive in October 2023.

We also saw rate hikes in the Philippines and Indonesia, moves which contributed to the average increase of 16 basis points across the region’s long-term government bond yields. The yield to maturity of the Markit iBoxx ABF Pan-Asia Index has risen for three straight months, surpassing 4% towards the end of October 2023 – the highest in almost a decade and the most elevated since October 2022.

Market Local Currency Bond Return FX Return Total Return (in USD)
Thailand -0.5% 1.6% 1.0%
Hong Kong 0.2% 0.1% 0.2%
Singapore 0.2% -0.3% -0.1%
China 0.1% -0.2% -0.1%
Korea -1.3% -0.1% -1.4%
Malaysia -0.6% -1.6% -2.2%
Philippines -2.2% -0.3% -2.5%
Indonesia -1.5% -2.5% -4.0%

Strong Trade Surplus Underpins the Thai Baht

Thailand (+1.0%) witnessed a 7-basis point increase in its 10-year bond yield during October 2023, now the highest since November 2014. However, the Thai baht, supported by a larger-than-expected trade surplus, appreciated by 1.6%. This led to positive US-dollar-denominated returns and saw Thailand emerge as the month’s top-performing market in the index (in US-dollar terms). With the Thai central bank’s interest rate at its highest in a decade ( following the rate hike in September 2023) consumer inflation was surprisingly soft, and market participants now expect at least a pause in the44 rate-hiking cycle despite the fiscal stimulus measures anticipated in the 2024 fiscal year (starting in October 2023).

Modest Increase in Hong Kong’s Longer-Term Bond Yields

Hong Kong’s (0.2%) long-term bond yields saw a modest increase of 7 basis points, while the Hong Kong dollar remained almost unchanged, resulting in a marginally positive performance in US-dollar-denominated terms. The 7-year yield increased to its highest level since 2007, leading to an improvement in the carry (or ‘income’) component of the total return. Although on an improving trend, GDP growth data for the third quarter of 2023 was weaker than predicted. In line with the US Federal Reserve, the Hong Kong Monetary Authority kept interest rates unchanged at 5.75%, the highest in over a decade, at its meeting in early November 2023. The central bank reiterated its goal of currency stability and announced a new payments infrastructure system with the Bank of Thailand.

Upbeat GDP, Industrial, and Retail Data in Singapore

Singapore (-0.1%) posted a marginally positive return in local-currency terms, as its long-term bond yield remained almost unchanged. However, the Singapore dollar fell slightly, resulting in a small negative return in US-dollar terms. Unlike Hong Kong, third-quarter GDP growth data was more robust than predicted, while industrial production and retail sales data were also better than anticipated. At its October 2023 policy review meeting, the Monetary Authority of Singapore kept policy rates unchanged (as expected) and announced a change in the frequency of its review meetings from semi-annually to quarterly starting in 2024. This move reflects a more dynamic global policy-setting landscape.

Steady Bond Yields and Minimal Currency Depreciation

China’s (-0.1%) bond yields remained essentially unchanged in October 2023, leading to a small positive local-currency return. Meanwhile, the Chinese renminbi saw a relatively minor depreciation during the month, leading to a small negative return in US-dollar terms. Economic data, on aggregate (including third-quarter GDP growth, retail sales, and industrial production), was surprisingly healthy. However, consumer inflation was weaker than expected. While the People’s Bank of China kept interest rates unchanged at its October 2023 meeting, persistent weakness in the property sector, as well as modest fiscal spending, prompted market participants to anticipate further cuts in both the policy rate and the reserve requirement ratio (the amount banks must keep in reserve) well into the first half of 2024.

Longer-Dated Bond Yields Soar in South Korea

South Korea (-1.4%) saw a significant 29 basis point increase in long-term bond yields, leading to negative returns in local-currency and US-dollar-denominated terms. Economic data, including Korea’s trade balance, third-quarter GDP growth, and industrial production, was better than expected. At its policy meeting, the Bank of Korea kept interest rates unchanged and remained committed to its ‘restrictive’ stance for a prolonged period. It also noted some upside inflationary risks, as conflict in the Middle East has led to higher oil prices.

Improving Economic News Flow in Malaysia

Malaysia (-2.2%) posted a 10-basis point increase in long-term bond yields, while the Malaysian ringgit depreciated. This led to negative returns in US-dollar terms. Elsewhere, third-quarter GDP data improved and industrial production was more resilient. However, consumer inflation moved unexpectedly lower, which kept the ringgit in check. As widely predicted, at its meeting in early November 2023, the Bank Negara Malaysia left interest rates unchanged.

Off-Cycle Rate Hike as Inflation Remains Elevated

Philippines (-2.5%) saw a significant 54 basis-point increase in the long-term bond yield during October 2023, leading to negative local-currency and US-dollar-denominated bond returns. Overall, the Philippines was the second weakest performer in the index. Consumer inflation data was much stronger than predicted, leading the Bangko Sentral ng Pilipinas (BSP) to announce an ‘off-cycle’ (but widely expected) hike in its policy rate to 6.5%. This was its highest level since 2007, as the BSP aims to keep inflation expectations ‘anchored’ in 2024. Market participants expect the central bank to announce a further interest rate hike in the near-to-medium term before a rate cut in the latter part of 2024.

Rupiah Depreciation and Rising Bond Yields

Indonesia (-4%) was the weakest-performing Asian market in the Markit iBoxx ABF Pan-Asia Index in October 2023. Ten-year local currency bond yields increased by 20 basis points, causing local-currency returns to remain negative. Meanwhile, the Indonesian rupiah saw a substantial depreciation, leading to a significantly negative return in US-dollar-denominated terms. In a surprising move, Bank Indonesia hiked its policy rate (the 7-day reverse repurchase rate) to 6%, which took it back to a level last seen in 2019 despite consumer inflation trending lower. The decision was aimed to curtail further depreciation in the Indonesian rupiah (and resulting inflationary impact), which had declined to its weakest level against the US dollar since 2020.

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