Insights

Asian Bonds Rally as Inflation Cools and Yields Dip

Global fixed income markets delivered a positive return in April 2025, with the Bloomberg Global Aggregate Index returning +1.0% on a US-dollar-hedged basis. The global treasury and government-related segments outperformed (+1.3% and +1.1%) as yields declined by 20 and 16 basis points, respectively. This came amid a sharp increase in risk aversion following the reciprocal tariffs imposed by the Trump administration in early-April 2025.

2025年5月27日

SSGA Fixed Income Portfolio Strategists

There were significant differences in the yields of 10-year government bonds globally, with European bond yields declining by the most (the falls ranged from 26 to 30 basis points), followed by the UK (-23 basis points), Australia (-22 basis points) and Japan (-18 basis points). However, two-year US Treasury bonds still fell by 28 basis points (compared to an average retreat of around 32 basis points across major developed economies).

Market	Local Currency Bond Return	FX Return	Total Return (in USD)
Korea	1.6%	3.6%	5.2%
Singapore	1.9%	2.7%	4.6%
Malaysia	1.3%	3.0%	4.3%
Philippines	0.4%	2.5%	3.0%
Thailand	0.9%	1.7%	2.6%
Hong Kong	1.3%	0.3%	1.6%
China	1.3%	-0.2%	1.1%
Indonesia	1.4%	-0.4%	1.0%

Trade Surplus Lifts the South Korean Won

South Korea (USD unhedged: +5.2%) was the best-performing market in the Markit iBoxx ABF Pan-Asia Index, delivering +1.6% in Korean-won terms, as the 10-year bond yield fell by 21 basis points with positive price and income components. Consumer inflation remained unchanged at 2.1% year on year in March 2025. Other key economic data was mixed, with the manufacturing Purchasing Managers’ Index (PMI) survey contracting. This reflected a sharp drop in output and weak new orders given global trade uncertainty. Meanwhile, retail sales also fell amid signs of soft consumption. At its April 2025 policy meeting, the Bank of Korea lowered the gross domestic product (GDP) forecast to 1.2% (from 1.7% at the start of the year) and maintained the base rate at 2.75%. The move, aimed at stabilising the Korean won amid new US tariffs, aligned with market expectations. Indeed, the Korean won was the best-performing currency for the month, yielding 3.6% mainly due to a trade surplus.

Singapore’s Monetary Policy on a Gradual Upward Path

Singapore (USD unhedged: +4.6%) recorded a positive Singapore-dollar return of 1.9% with positive income and price components, while the 10-year bond yield fell by 21 basis points. Headline inflation stood at 0.9% year on year in March 2025, unchanged from the previous month but slightly below the market’s expectation of 1.0%. This was also its lowest level since February 2021. Other key economic indicators remained mixed, with the manufacturing PMI survey continuing to rise and industrial output delivering a ninth straight month of growth, mainly due to a surge in transport engineering. In April 2025, the Monetary Authority of Singapore kept the Singapore-dollar nominal effective exchange rate (S$NEER) policy on a gradual upward path but reduced its slope slightly. It also lowered Singapore’s growth forecast to 2.4% from 2.6% in January 2025. The Singapore dollar returned 2.7% against the US dollar in April 2025.

Malaysia’s Trade Surplus Exceeds Market Expectations

Malaysia (USD unhedged: +4.3%) posted a positive Malaysian ringgit (MYR) return of 1.3% with positive income and price components, while the 10-year bond yield fell by 12 basis points. Headline inflation edged down to 1.4% year on year in March 2025 from 1.5% in the prior month, marking the lowest print since February 2021. Other key economic data remained mixed. The manufacturing PMI survey continued to contract, reflecting disappointing production data underpinned by low demand and falling output. Retail sales increased by 6.6% year on year in March 2025, following a downwardly revised 5.7% rise in the previous month. Malaysia's trade surplus increased to MYR24.7 billion year on year in March 2025, surpassing market estimates of a MYR13.8 billion gain. This was the largest excess since June 2023, as exports grew while imports fell. The Malaysian ringgit returned 3.0% against the US dollar in April 2025, with the gain driven by some robust macroeconomic factors as demonstrated by sustained trade and a current-account surpluses.

Philippine Interest-Rate Cut Aligns with Market Expectations

Philippines (USD unhedged: +3.0%) saw its 10-year bond yield rise by six basis points, yet managed to post a positive 0.4% return in the Philippine-peso market. Headline inflation edged down to 1.8% year on year in March 2025 (2.1% in February 2025), the slowest pace since May 2020 and below the central bank’s 2.0% to 4.0% target range, with the prices of food and transportation slowing notably. Other key economic data remained mixed as the manufacturing PMI survey contracted for the first time in three years, mainly due to raw material shortages and logistical challenges. Production data also took a hit as new orders eased amid weaker demand. The Philippines’ trade deficit widened, as imports increased more than exports. Bangko Sentral ng Pilipinas cut the benchmark interest rate by 25 basis points to 5.5% at its April 2025 policy meeting, aligning with market expectations. The Philippine peso closed at a seven-month high and delivered 2.5% against the US dollar due to high demand from domestic infrastructure projects.

Slowing Production Balanced by Trade Surplus

Thailand (USD unhedged: +2.6%) delivered a positive Thai-baht return of 0.9% with positive income and price components, while the 10-year bond yield fell by 17 basis points. Headline inflation declined to 0.84% year on year in March 2025 (from 1.08% in February 2025), with fuel and electricity prices slowing significantly. Other economic indicators remained mixed, as the manufacturing PMI survey indicated a slight contraction, given a slowdown in new orders, and production data marked an eighth consecutive month of contraction. Elsewhere, Thailand registered a trade surplus for the second straight month, as exports grew significantly more than imports, and retail sales were surprisingly robust. The Bank of Thailand lowered the key interest rate by 25 basis points to 1.75% at its April 2025 policy meeting, which aligned with the market’s expectations. The Thai baht returned 1.7% against the US dollar, fueled by the trade surplus.

Hong Kong’s Business Sentiment Touches Levels Seen in 2020

Hong Kong (USD unhedged: +1.6%) recorded a positive Hong Kong-dollar (HKD) return of 1.3% with positive income and price components, while the 10-year bond yield fell by 29 basis points. Consumer inflation stood at 1.4% year on year in March 2025, unchanged from the previous month and remaining at its lowest level since January 2025. Other key economic data was mixed, with the Hong Kong global PMI survey continuing to contract, as manufacturing activity was lackluster: new orders declined, and production data was sluggish amid weaker domestic and international demand. Business sentiment worsened further, with future expectations matching levels seen in the third quarter of 2020 during the pandemic. Hong Kong’s trade deficit widened to HKD45.4 billion in March 2025 as imports outgrew exports. The Hong Kong dollar returned 0.3% for the month, given its peg to the US dollar.

Chinese Exports Outpace Imports

China (USD unhedged: 1.1%) recorded a positive local currency return of 1.3%. The key macro event impacting the Chinese economy in April was the reciprocal tariff escalation with the US administration. US tariffs for Chinese goods escalated to 145% in the first fortnight of the month, with subsequent retaliatory tariffs from China. However, later in the month, the US administration adopted a more reconciliatory stance raising hopes for an eventual trade deal. Overall during the month, Chinese economic data releases surpassed market expectations with Q1 2025 GDP print at 5.4% vs. 5.2% expected and 5.4% in the prior period. March export data was much stronger as expected, while manufacturing and non-manufacturing surveys, retail sales and industrial production data also showed an improvement. However, inflation data was weaker than expected as CPI data continued to show deflationary pressures (-0.1% YoY vs. 0% expected). The People’s Bank of China (PBOC) kept its loan prime rates (LPRs) unchanged, as widely expected by consensus adopting a wait-and-see approach seeking to balance currency stability and counter-cyclical monetary stimulus. Chinese Yuan depreciated -0.2% against the US Dollar for the month.

No Change in Indonesian Interest Rates

Indonesia (USD unhedged: +1.0%) was the weakest performing market in the Markit iBoxx ABF Pan-Asia Index in April 2025. The Indonesian-rupiah return stood at 1.4%, fueled by a 13 basis point fall in the 10-year bond yield. Consumer inflation rose from -0.09% to 1.03% year on year in March 2025, but was still beneath the central bank’s target of 1.5% to 3.5%. The subdued inflation was attributed to significant government subsidies on electricity prices. Other key economic data remained mixed, as manufacturing-related activity continued to expand, with steady demand and output. Retail sales were better than expected; however, auto sales contracted. Bank Indonesia kept the benchmark interest rate at 5.75% at its April 2025 policy meeting, which aligned with market expectations. The Indonesian rupiah was the weakest-performing currency among the indices' markets, depreciating by 0.4%. The decline was fueled by slowing tourist arrivals and softer foreign direct investment.

Footnotes

Disclosure

All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.
Past performance is not a reliable indicator of future performance.

Diversification does not ensure a profit or guarantee against loss.

Currency Risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.

Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.

Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed markets.

Projected characteristics are based upon estimates and reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.

The views expressed in this article are the views of State Street Global Advsiors Fixed Income Portfolio Strategists through the period ended 15 May 2025 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

This article is issued by State Street Global Advisors Singapore Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.