Currency Pressures and Caution Weigh on Asian Bonds
The iBoxx ABF Pan Asia Bond Index recorded negative returns in March 2026. The US-dollar unhedged index declined by 4.51%, largely weighed down by negative currency movements across Asian markets, while the US-dollar-hedged index registered a more moderate decline of 1.55%.
State Street Investment Management Fixed Income Portfolio Strategists
Market Overview
Asian bond yields rose sharply in March 2026, increasing by an average of 36 basis points. The Philippines recorded the most pronounced rise in 10-year yields (+105 basis points), followed by Thailand (+52 basis points) and Indonesia (+42 basis points). In contrast, China experienced the smallest increase, with the 10-year yield rising by just 1 basis point.
During the first quarter of 2026, Asian bonds delivered negative returns, with the iBoxx Pan Asia Bond Index (US-dollar unhedged) declining by 2.58%, partly driven by adverse currency movements, which detracted 1.78% from performance. Asian bond yields rose by an average of 35 basis points over the quarter. The Philippines recorded the sharpest increase in 10-year yields (+86 basis points), followed by Indonesia (+78 basis points), Thailand (+60 basis points), South Korea (+50 basis points), Singapore (+16 basis points) and Malaysia (+12 basis points). In contrast, 10-year yields declined in Hong Kong (-20 basis points) and China (-4 basis points). On the monetary policy front, most Asian central banks kept policy rates unchanged, with the notable exceptions of the Bangko Sentral ng Pilipinas and the Bank of Thailand, both of which reduced their policy rates by 25 basis points in February 2026.
| Market | Local Currency | FX Return | Total Return USD |
| China | 0.2% | -0.7% | -0.6% |
| Hong Kong | -0.4% | -0.2% | -0.6% |
| Indonesia | -2.2% | -1.4% | -3.5% |
| Singapore | -2.2% | -2.0% | -4.2% |
| Malaysia | -0.5% | -3.7% | -4.2% |
| South Korea | -2.8% | -6.1% | -8.7% |
| Philippines | -4.5% | -5.1% | -9.3% |
| Thailand | -4.8% | -5.6% | -10.1% |
*Please note that the returns shown above relate to the month of March 2026.
Manufacturing Uptick, Easing Inflation, and Stronger Exports
China (USD Unhedged: -0.6%)
China’s bond market showed signs of stabilization over the first quarter of 2026, with the 10-year government bond yield declining by 4 basis points and the 2-year yield falling by 7 basis points, resulting in a modest bull steepening of the curve (where short-term interest rates fall at a faster pace than long-term interest rates). In contrast, the Chinese yuan appreciated by 1.34% against the US dollar, reflecting external pressures from higher global energy prices and elevated Middle East tensions. Economic data in March 2026 pointed to a tentative improvement in growth momentum following a weak start to the year, supported by post–Lunar New Year normalization and a rebound in manufacturing activity, as the official Manufacturing Purchasing Managers’ Index (PMI) survey returned to expansionary territory at 50.4. Inflationary pressures moderated as holiday-related effects faded, with the headline consumer price index (CPI) easing to 1.0% year on year (y/y), and the core CPI remaining contained at 1.1% y/y. Meanwhile, producer prices turned positive at 0.5% y/y for the first time in over three years, supported by higher energy and commodity prices alongside improving downstream demand. External trade rebounded strongly, with exports rising by 21.8% y/y and imports increasing by 19.8% y/y, signaling firmer external demand and improving domestic activity, while labor market conditions remained stable with the surveyed urban unemployment rate holding at around 5.3%. From a policy perspective, the People’s Bank of China maintained a steady stance, leaving the 1-year and 5-year Loan Prime Rates unchanged, reflecting a preference for targeted and measured support amid currency pressures and financial stability considerations.
Improving Economic Activity in Hong Kong
Hong Kong (USD Unhedged: -0.6%)
Hong Kong’s 10-year government bond yield declined by around 20 basis points over the first quarter of 2026, though it rose by 8 basis points in March 2026. Headline inflation edged higher, rising to 1.7% y/y in February 2026 from 1.1% previously, largely driven by higher transportation and services costs, while underlying pressures remained modest. Economic activity was resilient, with gross domestic product (GDP) growth expanding by 3.8% y/y in the fourth quarter of 2025, slightly above the revised 3.7% growth in the previous quarter. Business sentiment weakened in March 2026, with the S&P Global Hong Kong SAR PMI survey falling to 49.3, slipping back into contractionary territory after the six- month high seen in February 2026 amid softer new orders. Labor market conditions remained broadly stable, with the unemployment rate easing to 3.8% in the three months ending February 2026. Meanwhile, the Hong Kong Monetary Authority kept its base rate unchanged at 4.0% in March 2026, in line with US monetary policy.
Indonesia Sees Healthy Growth and Moderating Inflation
Indonesia (USD Unhedged: -3.5%)
Indonesia’s 10-year government bond yield rose by 78 basis points over the first quarter of 2026 and by 42 basis points in March 2026. Headline inflation moderated in March 2026, easing to 3.48% y/y from 4.76% in February 2026, as food and administered price pressures softened following earlier base effects, bringing inflation back within Bank Indonesia’s target range. Economic activity remained robust, with GDP growth expanding by 5.39% y/y in the fourth quarter of 2025, the strongest reading since 2022, supported by resilient domestic demand. Manufacturing momentum slowed, with the S&P Global Manufacturing PMI survey declining to 50.1 in March 2026 from 53.8, pointing to near stagnant conditions amid weaker new orders. Labor market conditions were broadly stable, with the unemployment rate last recorded at 4.85%. Meanwhile, Bank Indonesia kept its benchmark interest rate unchanged at 4.75% in March 2026, maintaining a cautious stance to support Indonesian rupiah stability amid continued global uncertainty.
Singapore GDP Eases
Singapore (USD Unhedged: -4.2%)
Singapore’s 10-year government bond yield rose by 16 basis points over the first quarter of 2026, with a sharper increase of 34 basis points in March 2026. Headline inflation remained subdued, easing to 1.2% y/y in February 2026 from 1.4% in January 2026, driven by softer housing and utility costs, although underlying price pressures edged up modestly. Manufacturing activity continued to expand, with the PMI survey easing slightly to 50.5 in March 2026 from 50.6 in February 2026 but remaining in expansionary territory despite weaker momentum. Economic growth moderated in the first quarter of 2026, with GDP expanding by 4.6% y/y, down from 5.7% in the previous quarter and below market expectations of 5.4%, according to advance estimates. Meanwhile, short-term interest rates stayed accommodative, with the Singapore Overnight Rate Average (SORA) sitting at around 1.0% in March 2026, below its long-term average and supportive of overall financial conditions.
Bank Negara Malaysia Maintains its Supportive Policy Stance
Malaysia (USD Unhedged: -4.2%)
Malaysia’s 10-year government bond yield rose by 12 basis points over the first quarter of 2026 and by 14 basis points in March 2026. Inflationary pressures remained contained, with headline inflation easing to 1.4% y/y in February 2026 from 1.6% in January 2026, reflecting softer price increases across food, housing, and services. Economic growth strengthened, with GDP expanding by 6.3% y/y in the fourth quarter of 2025, supported by robust domestic demand, solid manufacturing activity, and resilient services sector performance. Manufacturing activity returned to expansionary territory, as the S&P Global Manufacturing PMI survey rose to 50.7 in March 2026 from 49.3 in February 2026, marking its highest level since April 2022, although rising input costs continued to weigh on future sentiment. Labor market conditions remained firm, with the unemployment rate holding steady at 2.9% in February 2026, unchanged from the previous month and the lowest level since November 2014. Meanwhile, Bank Negara Malaysia maintained its Overnight Policy Rate at 2.75% in March 2026, keeping its policy stance supportive of growth while closely monitoring inflationary trends and external risks.
Strong Output and Improved New Orders
South Korea (USD Unhedged: -8.7%)
South Korea’s 10-year government bond yield rose by 50 basis points in the first quarter of 2026 and by 43 basis points in March 2026. Inflation edged higher to 2.2% y/y in March 2026, up from 2.0% in the previous two months, reflecting rising energy and transport costs and moving slightly above the Bank of Korea’s target, though overall price pressures remained relatively contained. Manufacturing activity strengthened further, with the S&P Global Manufacturing PMI survey rising to 52.6 in March 2026 from 51.1 in February 2026, marking the strongest expansion since early 2022, supported by robust output growth and improved new order inflows despite elevated cost pressures. Meanwhile, the Bank of Korea maintained its base rate at 2.5% for a seventh consecutive meeting, reaffirming a cautious policy stance amid rising inflation risks, improving manufacturing momentum, and ongoing concerns about financial market volatility and external uncertainties.
Higher Energy Costs Underpin Rising Prices
Philippines (USD Unhedged: -9.3%)
The Philippines’ 10-year government bond yield rose by 86 basis points over the first quarter of 2026 and by 105 basis points in March 2026. Annual inflation increased sharply to 4.1% in March 2026 from 2.4% in February 2026, driven by higher transport, fuel, food, and housing-related costs following the surge in energy prices. The S&P Global Philippines Manufacturing PMI survey moderated to 51.3 in March 2026 from 54.6 in February 2026, indicating a slower but still ongoing expansion in manufacturing activity amid softer export demand and rising input cost pressures. Economic growth cooled, with GDP expanding by 3.0% y/y in the fourth quarter of 2025, reflecting weaker investment and public spending. Labor market conditions improved modestly, with the unemployment rate declining to 5.1% in February 2026. On the policy front, the Bangko Sentral ng Pilipinas cut its policy rate by 25 basis points in February 2026 to 4.25%, maintaining a cautious and data- dependent easing stance.
Varied Economic Picture in Thailand
Thailand (USD Unhedged: -10.1%)
Thailand’s 10-year government bond yield rose by 60 basis points over the first quarter of 2026 and by 52 basis points in March 2026. Economic data were mixed. Manufacturing activity strengthened, with the S&P Global Thailand Manufacturing PMI survey rising to 54.1 in March 2026 from 53.5 in February 2026, marking the strongest improvement since late 2025 and supported by firmer domestic demand, although external demand conditions remained subdued. Inflation stayed weak, with consumer prices declining by 0.08% y/y in March 2026, moderating from a sharper 0.88% contraction in February 2026 and defying expectations of a modest increase. The labor market remained resilient, with the unemployment rate edging down to around 0.7% in the fourth quarter of 2025. Against this backdrop, the Bank of Thailand unexpectedly cut its benchmark interest rate by 25 basis points to 1.0% at its February 2026 meeting, defying market expectations of a hold, as the central bank sought to support growth amid subdued inflation and below potential economic activity.