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US Dollar Rebound Creates Headwinds for Asian Bonds

In line with other global markets, Asian bonds delivered a negative return in October 2024, partially retracing the robust gains seen in the third quarter of 2024. The Markit iBoxx ABF Pan-Asia Index was down by -3.7% on a US-dollar unhedged basis, with the currency component falling by -3.5%, given the US dollar bounced back against Asian currencies. The Markit iBoxx ABF Pan-Asia Index declined by -0.2% on a US-dollar hedged basis, with Asian 10-year bond yields rising by an average of 15 basis points as a negative price return offset the positive income component.

SSGA Fixed Income Portfolio Strategists

2024年11月25日 3分で観られる

Across Asia, China was the only market that saw a decline in the 10-year yield (-6.0 basis points), as its bond-price movements remained decoupled from Asia and the rest of the world. In contrast, Hong Kong saw its 10-year yield rise by the most (+37 basis points), followed by Indonesia (+33 basis points) and Singapore and Malaysia (+21 basis points each).

Overall, the increase in Asian yield levels was more modest compared to the US. During the month, the People’s Bank of China (PBOC), as well as the Bank of Korea (BOK), Bank of Thailand (BOT) and Bangko Sentral Ng Pilipinas (BSP), cut their policy rates.

Market	Local Currency Bond Return	FX Return	Total Return(in USD)
Hong Kong	-1.2%	0.0%	-1.3%
China	0.1%	-1.5%	-1.4%
Thailand	0.7%	-4.4%	-3.8%
Singapore	-0.9%	-3.1%	-4.0%
Philippines	-0.6%	-3.6%	-4.2%
Indonesia	-1.1%	-3.5%	-4.6%
Korea	-0.4%	-5.2%	-5.6%
Malaysia	-0.6%	-6.2%	-6.7%

Notable Spike in Hong Kong’s 10-Year Bond Yield

Hong Kong (USD unhedged: -1.3%) was the best-performing market in US-dollar terms but the weakest in Hong Kong-dollar terms. Despite soft macroeconomic data, the 10-year yield rose by 37 basis points, resulting in a Hong Kong-dollar return of -1.2%. Gross domestic product (GDP) growth for the third quarter of 2024 stood at 1.8%, which was weaker than the expected 3.1% expansion. Consumer inflation in September 2024 eased to 2.2% year on year (from 2.5% in August 2024) as food and transport prices moderated. Other key economic data was also sluggish, with a sharp decline in imports to 1.4% year on year in September 2024 (from 7.9% in August 2024), while retail sales continued to ease, suggesting a slowdown in domestic consumption.

Better-Than-Anticipated Newsflow in China

China (USD unhedged: -1.4%) China ten-year yields declined 6 bps in October to near the lowest closing levels this year, while the Chinese Yuan depreciated nearly 1.5% in the month. Economic data releases remained mixed but, on aggregate, were surprisingly positive compared to market expectations. GDP growth for the third quarter of 2024 was marginally better than anticipated but still weaker than the previous quarter. In an attempt to meet China’s growth targets for 2024, the PBOC announced further policy-rate cuts and a 50 basis point reduction in the reserve requirement ratio (RRR) for banks (this is the amount of money banks must keep in reserve), while keeping the option open for a further reduction in the RRR for commercial lenders by 25 to 50 basis points before the end of the year. The PBOC also encouraged banks to lower mortgage rates to stimulate the housing sector. Meanwhile, fiscal measures were announced to support the housing sector, including a planned increase in local government debt quotas.

Thailand Posts Mixed Economic Data

Thailand (USD unhedged: -3.8%) Thailand was the best-performing market in the iBoxx Pan-Asia Index in October 2024 in local currency terms. The 10-year yield declined by six basis points to deliver a +0.7% return with favourable price and income components. However, the Thai baht declined by -4.4% in October 2024, detracting from US-dollar unhedged returns. Consumer inflation in September 2024 rose to 0.61% year on year (from 0.35% in August 2024) but was still beneath the Bank of Thailand (BOT)’s target range of 1.0 to 3.0% for 2024. Key economic data remained mixed: the manufacturing Purchasing Managers' Index (PMI) survey in September 2024 remained subdued as new orders saw a slight dip, but retail sales were robust. The BOT unexpectedly lowered its key interest rate by 25 basis points to 2.25% at the October 2024 policy meeting, marking the first rate cut since early 2020.

Resilient Manufacturing and Industrial Activity in Singapore

Singapore (USD unhedged: -4.0%): Singapore’s 10-year yield rose by 21 basis points to deliver -0.9% returns in Singapore-dollar terms, while the Singapore dollar declined by -3.1%, further denting US-dollar unhedged returns. The increase in bond yields, which matched the global trend, was also driven by better-than-expected data and marginally stronger inflation readings. GDP growth for the third quarter of 2024 registered at 4.1%, which surpassed the expected 2.9%. Manufacturing and industrial activities remained resilient. Unemployment edged down to 1.8% in the third quarter of 2024 (from 2.0% in the previous quarter), while trade, on aggregate, also contributed positively. Meanwhile, consumer inflation in September 2024 eased from 2.2% to 2.0% year on year, although this was slightly higher than the market’s estimate of 1.9%.

Philippine Manufacturing Activity Improves

Philippines (USD unhedged: -4.2%): The Philippine 10-year bond yield rose by six basis points, resulting in a -0.6% return in Philippine-peso terms. Meanwhile, the Philippine peso declined by -3.6%. GDP growth for the third quarter of 2024 stood at 5.2%, which was behind the market’s forecast of 5.7%. However, other economic data were robust, with the manufacturing PMI improving to a 27-month high in September 2024, driven by solid growth in output and new orders. Unemployment narrowed to 3.7% in September 2024 (from 4.0% in August 2024). BSP trimmed its policy rate by 25 basis points to 6.0% at the October 2024 policy meeting, marking the second consecutive rate cut, in line with investor expectations.

No Change to Indonesian Interest Rates

Indonesia (USD unhedged: -4.6%): The Indonesian 10-year bond yield rose by 33 basis points, leading to a -1.1% return in Indonesian-rupiah terms. However, the Indonesian rupiah was down by -3.5%. GDP growth for the third quarter of 2024 came in at 4.95%, marginally below the anticipated 5.0%. The manufacturing PMI survey declined for a third consecutive month in September 2024, with new orders also witnessing a marginal fall. Other key economic data remained muted. In September 2024, consumer inflation increased to 1.84% year on year (from 2.12% in August 2024) but stayed within the central bank’s target range of 1.5% to 3.5%. Bank Indonesia kept interest rates unchanged at 6.0 in October 2024, which aligned with market consensus. Investors now predict an interest-rate cut by the end of 2024, with three further reductions expected in the first half of 2025.

Lower Borrowing Costs in South Korea

South Korea (USD unhedged: -5.6%): South Korea’s 10-year yield rose by 10 basis points, resulting in a -0.4% return in Korean won terms. At the same time, the Korean won witnessed a sharp 5.2% decline against the US dollar and was a key performance detractor in October 2024. GDP growth for the third quarter of 2024 stood at 1.5%, which was below the expected 2.0% rise. Other key economic newsflow remained sluggish: manufacturing and industrial production data were disappointing, and unemployment inched up to 2.5.0 in September 2024. Trade data and retail sales were still muted. Consumer inflation in September 2024 eased to 1.6% year on year (from 2.0 in August 2024), marking the lowest print since February 2021. In response, the BOK cut interest rates by 25 basis points in October 2024, with the market expecting two additional interest-rate cuts in the first half of 2025

No Near-Term Policy Changes Expected in Malaysia

Malaysia (USD unhedged: -6.7%): Malaysia’s 10-year bond yield rose by 21 basis points to deliver a 0.6% return in Malaysian ringgit terms. However, the Malaysian ringgit was the weakest-performing currency in October 2024, declining by -6.2%. GDP growth for the third quarter of 2024 came in at 5.3%, which was above the anticipated 5.1%. The manufacturing PMI survey contracted for a fourth consecutive month in September 2024, while employment was broadly unchanged. Industrial production, retail sales and trade data failed to meet expectations. Consumer inflation in September 2024 edged down to 1.8% year on year (from 1.9% in August 2024). The market does not expect a change in the BNM’s policy stance in the first half of 2025.

Footnotes

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