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Muted China Yields Contrast with Elevated Asia Yields

China yields hit a new low in February 2024. Meanwhile, aggregate Asian yields, in contrast to the US, moved only slightly higher but remained at record levels.


SSGA Fixed Income Portfolio Strategists

Asian bond yields and currencies consolidated in February 2024, with the Markit iBoxx ABF Pan-Asia Index returning -0.1% on an unhedged basis in US-dollar terms and +0.3% on a US-dollar-hedged basis. Despite a reduction in US Federal Reserve (Fed) rate-cut expectations, long-term Asian government bond yields increased by only eight basis points, on average, during the month – this was significantly lower than the 34 basis point rise seen in the United States.

However, a wider dispersion was seen in yield dynamics across Asian markets, with Hong Kong yields gaining almost 27 basis points, while those in China declined by a further eight basis points to reach record low levels. Although yields in the Markit iBoxx ABF Pan-Asia Index have slipped by almost 50 basis points since the end of October 2023, overall yield levels remain near the top quartile of the range over the past ten years.

Market Local Currency Bond Return FX Return Total Return (in USD)
Indonesia 0.7% 0.4% 1.1%
China 0.9% -0.2% 0.8%
Philippines 0.1% 0.1% 0.2%
Thailand 1.0% -1.1% 0.0%
Korea -0.5% 0.2% -0.3%
Malaysia 0.2% -0.7% -0.5%
Hong Kong -0.7% -0.1% -0.8%
Singapore -1.1% -0.3% -1.4%

Clean Election Mandate Supports the Indonesian Market

Indonesia (+1.1%) was the best-performing market in the Markit iBoxx ABF Pan-Asia Index, delivering +1.1% in US-dollar terms and +0.7% in Indonesian-rupiah terms. Although yields increased in the one-year segment, long-term bond yields were unchanged, with positive income returns and a modest appreciation in the Indonesian rupiah aiding the outperformance. A clean election mandate did not trigger any major currency or bond market movements. Meanwhile, Bank Indonesia (BI) Governor Perry Warjiyo noted that growth is expected to surpass 5% in 2024 as the Presidential election concluded without a run-off phase. Earlier, BI kept interest rates unchanged while remaining open to a rate cut in the second half of 2024.

Declining Long-Term Yields Boost Chinese Yuan Returns

China (+0.8%) was the second-best performing market in the index, with a decline in long-term local-currency yields (to multi-decade lows) aiding Chinese-yuan returns. Despite marginally better-than-expected data releases, such as the non-manufacturing Purchasing Managers’ Index survey (PMI) and credit growth, long-term yields declined as the People’s Bank of China (PBoC) announced a larger-than-expected cut in the five-year loan prime rate, a key rate used to price mortgages, at its February 2024 meeting. The measure came on the back of a cut in the PBoC’s reserve requirement ratio (RRR) in January (the RRR is the amount a bank is required to keep in reserve). Market participants expect monetary stimulus measures to continue in the first half of 2024, including a further cut in the RRR.

Robust Growth Data and Softer Inflation

Philippines (+0.2%) posted marginally positive US-dollar-denominated as well as Philippine- peso returns. The long-term 10-year yield increased by 12 basis points in February 2024, although the negative price return was offset by a positive income effect. While quarter-four 2023 gross domestic product (GDP) growth data was better than expected, consumer inflation was unexpectedly weak. At its February 2024 policy meeting, Bangko Sentral ng Pilipinas kept interest rates unchanged but lowered its inflation forecasts for 2024, leaving the door open for rate cuts in the second half of the year.

Declining Thai Baht Underpinned by Weaker Consumer Prices

Thailand (+0.0%) delivered a flat return in US-dollar-denominated terms in February 2024. Thai baht returns were significantly positive, although a decline in the Thai baht fully offset the overall performance in US-dollar terms. The fall in the Thai baht was primarily driven by consumer inflation data, which showed that prices had slipped by more than anticipated. At its policy review meeting, the Bank of Thailand kept interest rates unchanged; however, a larger-than-expected contraction in GDP growth data later in the month led to increased expectations of a near-term rate cut by the central bank.

Improving Industrial Production and Retail Sales in South Korea

South Korea (-0.3%) saw a modestly negative return in US-dollar-denominated terms, with negative Korean-won returns stemming from a 13 basis point increase in the long-term bond yield. Although consumer inflation data was lower than anticipated, other key economic indicators, such as industrial production and retail sales, were better than predicted. At its policy meeting, the Bank of Korea (BoK) kept interest rates unchanged, as expected, while acknowledging uncertainty around the inflationary path and weaker domestic growth. Market participants expect the BoK to be one of the first Asian central banks to cut interest rates starting in the third quarter of 2024.

Malaysia’s Growth and Trade Data Improves

Malaysia (-0.5%) posted negative US-dollar-denominated returns driven by a depreciation in the Malaysian ringgit. That said, Malaysian-ringgit returns were marginally positive, driven by the income component. Long-term 10-year yields increased by eight basis points in February 2024, as GDP growth for the fourth quarter of 2023 was better than expected, while trade data was also surprisingly robust. Consumer inflation data was marginally lower than anticipated, and market participants believe Malaysia’s rate-cutting cycle will begin in the latter part of 2024.

Significant Rise in Hong Kong’s Long-Term Yields

Hong Kong (-0.8%) registered negative returns in US-dollar-denominated as well as Hong Kong-dollar terms, with the 10-year yield rising by a significant 27 basis points. This was in tandem with the rise in long-term US yields. Economic data releases were surprisingly weak, including retail sales, GDP growth, and consumer prices. In line with the Fed, the Hong Kong Monetary Authority (HKMA) kept interest rates unchanged at its early February 2024 meeting, with the HKMA ruling out the use of foreign reserves to invest in local real estate or equity markets.

Rising Yields in Singapore Despite Weaker Economic Data

Singapore (-1.4%) experienced the lowest US-dollar-denominated returns in the Markit iBoxx Pan Asia index, with Singapore-dollar returns impacted by a 19-basis point increase in the long-term 10-year yield. The increase in bond yields aligned with a similar rise in developed markets. It came despite economic data releases, such as GDP growth and industrial production, registering at surprisingly weak levels. Notably, consumer inflation data was unexpectedly soft, and market participants expect short-term interest rates to fall by nearly 50 basis points by the end of 2024.

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