Insights

Asian bond prices ease amid currency and yield shifts

In September 2025, the iBoxx ABF Pan-Asia Bond Index delivered negative returns, with the US-dollar-unhedged version down by 0.68% and the hedged version falling by 0.17%. Asian currencies broadly depreciated against the US dollar, adding to the negative performance. Across the region, bond yields exhibited mixed movements: Hong Kong saw a modest decline of three basis points, while yields rose in most other markets, notably South Korea and Thailand, both up by 13 basis points.

State Street Investment Management Fixed Income Portfolio Strategists

December 2, 2025

Asian bonds posted slightly negative returns in the third quarter of 2025, with the iBoxx ABF Pan-Asia Bond Index (US-dollar-unhedged) down by -0.09%. On average, 10-year yields declined by seven basis points, though movements varied across markets. Yields rose in China (+22 basis points), Hong Kong (+10 basis points), and South Korea (+15 basis points). In comparison, notable declines occurred in Singapore (-28 basis points), Indonesia (-27 basis points), the Philippines (-20 basis points), Thailand (-18 basis points), and Malaysia (-6 basis points).

Asian currencies also depreciated modestly, with the US-dollar-hedged index delivering a 1.43% return. Monetary policy remained broadly accommodative across the region during the quarter. Thailand cut its policy rate by 25 basis points to 1.50%, Malaysia lowered its rate to 2.75%, and Bank Indonesia trimmed its policy rate to 4.75%. In China, liquidity was eased through reserve requirement and repo rate adjustments, while Hong Kong mirrored global trends with a 25-basis-point cut in its prime rate. Lastly, South Korea kept its policy rate unchanged but maintained a cautious stance.

Market	Local Currency Bond Return	FX Return	Total Return (in USD)
Hong Kong	-0.1%	0.1%	0.0%
Malaysia	0.4%	0.3%	-0.1%
China	-0.5%	0.1%	-0.4%
Indonesia	0.8%	-1.3%	-0.5%
Singapore	-0.2%	-0.5%	-0.7%
Thailand	-1.2%	0.1%	-1.1%
Philippines	0.4%	-1.8%	-1.4%
Korea	-0.6%	-0.9%	-1.5%

Improving Growth in Hong Kong

Hong Kong (USD Unhedged: 0.0%)
In September 2025, Hong Kong’s 10-year government bond yield declined by three basis points while the Hong Kong dollar appreciated slightly by 0.1%. Inflation rose modestly to an annual rate of 1.1% in August 2025, and the unemployment rate held steady at 3.7% over the three months ending August 2025. The economy grew by 3.1% year on year in the second quarter of 2025, matching preliminary estimates and slightly accelerating from 3.0% in the previous quarter. In response to evolving economic conditions, the Hong Kong Monetary Authority lowered its base rate by 25 basis points to 4.5% during the month.

Malaysia’s Settled Economic Backdrop

Malaysia (USD Unhedged: -0.1%)
Malaysia’s 10-year government bond yield rose by six basis points in September 2025, while the Malaysian ringgit appreciated by 0.3% over the month. Inflation remained subdued at 1.3%, supported by easing global commodity prices and stable domestic conditions. Bank Negara Malaysia maintained its overnight policy rate at 2.75%, signaling a neutral stance amid balanced growth and inflationary dynamics. The unemployment rate held steady for a fifth month.

Activity in China Improves but Deflationary Pressures Persist

China (USD Unhedged: -0.4%)
China’s financial markets and economic indicators reflected mixed trends in the third quarter of 2025, with the 10-year government bond yield rising by nine basis points in September 2025, contributing to a cumulative increase of 22 basis points over the three-month period, while the two-year yield climbed by 10 basis points during the quarter. The Chinese yuan appreciated marginally by 0.1% in September 2025. On the economic front, signs of recovery emerged in the manufacturing sector toward the end of the third quarter of 2025, with the official Purchasing Managers’ Index (PMI) survey rising to 51.1 in September 2025 – the highest level since March 2025. Output expanded at the fastest pace in three months, and new export orders increased for the first time in six months. Domestic demand also strengthened, with new business growth reaching its quickest rate since February 2025. Trade data showed exports rising 4.4% year on year in August 2025, while imports grew by 1.3%. However, consumer prices declined by 0.4% year on year in August 2025, indicating persistent deflationary pressures. Employment edged up to 5.3% in August 2025 while fixed-asset investment grew by only 0.5% year on year during the January 2025 to August 2025 period, significantly below the expected 1.4%. On the monetary policy front, after cutting lending rates in May 2025, the People’s Bank of China maintained key rates at record lows for the fourth consecutive month in September 2025.

Inflation Edges Higher in Indonesia

Indonesia (USD Unhedged: -0.5%)
Indonesia’s 10-year government bond yield rose by one basis point in September 2025 but fell by 27 basis points over the third quarter of 2025, reflecting easing market conditions. The Indonesian rupiah weakened by 1.3% against the US dollar. Headline inflation accelerated to 2.65% year on year in September 2025, up from 2.31% in August 2025—its highest level since May 2024—while core inflation rose to 2.19%. The S&P Global Indonesia Manufacturing PMI survey slipped to 50.4, indicating continued expansion but at a slower pace. In a surprise move, Bank Indonesia cut its benchmark interest rate by 25 basis points to 4.75%, defying expectations of a hold at 5.0%.

Singapore’s Manufacturing Sees a Modest Expansion

Singapore (USD Unhedged: -0.7%)
Singapore’s 10-year government bond yield rose by eight basis points in September 2025, while the Singapore dollar weakened by 0.5%. Headline inflation eased to 0.5% in August 2025, but core inflation ticked up by 0.3%. The unemployment rate was revised to 2.0% in the second quarter of 2025, reflecting concerns that global uncertainties may dampen hiring and wage growth. The Manufacturing PMI survey edged up to 50.1 in September 2025 from 50.0 in August 2025, the highest in six months. While the manufacturing sector is expected to maintain momentum into the fourth quarter of 2025, risks remain. These include US tariff pressures, global economic headwinds, and targeted tariffs on pharmaceuticals and electronics, which could weigh on growth later in the year. Markets anticipate that the Monetary Authority of Singapore will maintain its policy stance at the upcoming October 2025 meeting.

A Fifth Month of Output Growth

Thailand (USD Unhedged: -1.1%)
Thailand’s 10-year government bond yield rose by 13 basis points in September 2025, while the Thai baht posted a modest 0.1% appreciation during the month. Headline consumer prices declined by 0.72% year-on-year in September 2025, while core inflation edged up by 0.65%. The unemployment rate stood at 0.91% in the second quarter of 2025, slightly higher than 0.89% previously. The Manufacturing PMI survey strengthened to 54.6 in September 2025 from 52.7 in August 2025, marking the fifth consecutive month of expansion and the fastest pace since May 2023, supported by robust demand, new orders, and business development initiatives.

Higher Food Prices Fuel Inflation

(USD Unhedged: -1.4%)
The Philippines’ 10-year government bond yield rose by seven basis points in September 2025, while the Philippine peso depreciated by 1.8%, resulting in a negative US-dollar-unhedged return. Inflation accelerated to 1.7% year on year in August 2025, the highest level since March 2025, driven by faster price increases in food and non-alcoholic beverages. However, core inflation eased slightly to 2.6% in August 2025 (from an eight-month high of 2.7%).

Currency Weakness in South Korea

South Korea(USD Unhedged: -1.5%)
South Korea’s 10-year government bond yield rose by 13 basis points in September 2025, while the South Korean won depreciated by 0.9% amid global rate volatility and cautious investor sentiment. Consumer inflation accelerated to 2.1% year on year, driven by broad-based increases in food, services, industrial goods, agriculture, and utilities. The unemployment rate edged up to 2.6% in August 2025, signaling a slight softening in the labor market. Nevertheless, the economy remained resilient, with gross domestic product (GDP) growth expanding by 0.6% and manufacturing activity showing signs of recovery – evidenced by the PMI rising to 50.7, supported by stronger output and new orders.

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