Insights

Mixed yield moves end a positive year for Asian bonds

February 4, 2026 8 min read

The iBoxx ABF Pan Asia Bond Index closed the year on a constructive note, delivering positive returns in December 2025. The US-dollar unhedged index rose 1.09%, supported by broad-based appreciation across Asian currencies, while the US-dollar hedged index gained 0.10%. Yield movements across Asian bond markets remained mixed, reflecting divergent domestic fundamentals and policy paths. Indonesia outperformed during the month as bond yields declined by 25 basis points, while the Philippines recorded the largest increase, rising by 14 basis points. Overall, Asian 10-year bond yields edged higher by an average of one basis point in December 2025.

State street Investment Management fixed income portfolio strategists

Asian bonds delivered positive returns over the fourth quarter of 2025 (the quarter), with the iBoxx ABF Pan Asia Bond Index (US-dollar unhedged) gaining 0.41%. On average, 10-year government bond yields across the region rose by nine basis points, although performance diverged meaningfully by market. Yields increased notably in South Korea (+43 basis points), Thailand (+22 basis points), and Singapore (+21 basis points), while Indonesia saw a sharp decline of 30 basis points.

Asian currencies also weakened modestly against the US dollar, and the hedged version of the index delivered a more muted return of +0.10%. Most Asian central banks kept their policy rates unchanged during the quarter, reflecting a cautious monetary stance amid mixed signals on growth and inflation. However, several authorities adopted an easing bias: Bangko Sentral ng Pilipinas (BSP) cut its policy rate by 50 basis points over the quarter, while the Bank of Thailand (BOT) reduced the benchmark rate by 25 basis points at its December 2025 policy meeting. In addition, the Hong Kong Monetary Authority (HKMA) lowered its base rate by a total of 50 basis points during the quarter, bringing it to 4.0%.

Market	Local Currency Bond Return	FX Return	Total Return (in USD)
Thailand	0.5%	2.1%	2.6%
Korea	0.0%	2.1%	2.1%
Malaysia	0.3%	1.8%	2.1%
China	-0.3%	1.2%	1.0%
Indonesia	0.9%	-0.1%	0.8%
Singapore	-0.7%	0.9%	0.2%
Hong Kong	-0.1%	0.0%	-0.1%
Philippines	-0.4%	-0.3%	-0.7%

The performance data quoted represents past performance. Past performance does not guarantee future results.

Rate cut as Thailand faces political uncertainty

Thailand (USD unhedged: 2.6%)
Thailand’s 10-year government bond yield declined by 10 basis points in December 2025 but rose by 22 basis points over the quarter, while the Thai baht contributed 2.1% to December 2025’s returns. Manufacturing activity strengthened, with the S&P Global Thailand Manufacturing Purchasing Managers' Index (PMI) survey rising to 57.4 in December 2025—the highest level since May 2023—up from 56.8 in the prior two months. However, economic growth moderated, as gross domestic product (GDP) expanded by 1.2% year on year (y/y) in the third quarter of 2025, down from 2.8% in the second quarter of 2025. Inflation remained weak, with consumer prices falling 0.28% y/y in December 2025, a smaller-than-expected decline and easing from November 2025’s 0.49% drop, largely driven by lower non-food prices amid falling energy costs. Labor market conditions improved, with unemployment declining to 0.76% in the third quarter of 2025 from 0.88% previously. In response to subdued growth, the BOT cut its policy rate by 25 basis points to 1.25% in December 2025, marking the fifth rate cut over the past year and a cumulative reduction of 125 basis points to support the economy amid external pressures, elevated household debt, a strong Thai baht, and political uncertainty ahead of the February 2026 elections.

Central bank caution in South Korea

South Korea (USD Unhedged: 2.1%)
South Korea’s 10-year government bond yield rose by three basis points in December 2025, while the Korean won contributed 2.1% to returns. Inflation eased slightly to 2.3% in December 2025, and GDP grew by 1.8% in the third quarter of 2025, though labor conditions softened, with unemployment rising to 2.7% in November 2025. Manufacturing activity showed tentative improvement, with the S&P Global PMI survey rising to 50.1, signaling a return to expansion. The Bank of Korea kept its policy rate unchanged at 2.50%, citing concerns over the economic outlook, housing market risks, and currency volatility.

Malaysia signals a supportive economic backdrop

Malaysia (USD Unhedged: 2.1%)
Malaysia’s 10-year government bond yield rose by four basis points in December 2025, while the Malaysian ringgit strengthened meaningfully, contributing approximately 1.8% to returns. Inflation edged slightly higher, with the annual rate rising to 1.4% in November 2025 from 1.3% previously, while labor market conditions improved, with the unemployment rate declining to 2.9%. Manufacturing activity remained steady, with the S&P Global Malaysia Manufacturing PMI survey holding at 50.1 in December 2025—unchanged from November 2025 but still at its highest level since May 2024. Against this backdrop, Bank Negara Malaysia kept its policy rate unchanged at 2.75% for a second consecutive meeting in November 2025, in line with market expectations, noting that the stance remained appropriate and supportive of economic growth amid stable price conditions.

China’s manufacturing activity expands

China (USD Unhedged: 1.0%)
China showed tentative signs of late-quarter stabilization in December 2025, underpinned by resilient exports to non-US markets and reduced external uncertainty following the continuation of the US–China trade truce. Inflation edged higher toward the year end, with the headline consumer price index rising to 0.8% y/y in December 2025 from 0.7% in November 2025, signaling a gradual easing of deflationary pressures; however, the producer price index remained in deflationary territory, contracting by 1.9% y/y, highlighting persistent excess capacity and weak industrial pricing power. Domestic demand remained fragile, as fixed asset investment declined by 2.6% y/y (January 2025–November 2025), exceeding market expectations. Manufacturing activity improved marginally, with the official PMI survey ticking up to 50.1 in December 2025 from 49.9 in November 2025, returning to expansion territory, while services activity showed modest growth, with the services PMI survey at 52.0 amid subdued consumer demand. External trade proved relatively resilient toward the year end, with exports rising by 5.9% y/y in November 2025 and imports increasing by 1.9%, driven largely by stronger shipments to non-US destinations as authorities continued to diversify trade partners. Labor market conditions remained broadly stable, with the urban unemployment rate unchanged at 5.1% in November 2025. Overall growth momentum softened into the year end, following GDP growth of 4.8% y/y in the third quarter of 2025, down from 5.2% in the second quarter of 2025, marking the slowest expansion in a year, shaping a subdued backdrop in the fourth quarter of 2025. The People’s Bank of China maintained its one-year Loan Prime Rate and the five-year Mortgage Reference Rate at 3.00% and 3.50%, respectively, for a seventh consecutive month while resuming sovereign bond purchases to stabilize the markets. Bond markets reflected cautiously improving sentiment, with mild bull steepening (short-term interest rates declining more quickly that long-term interest rates), as the 10 year government bond yield fell to around 1.84% by end December 2025, down two basis points from the end of the third quarter of 2025, while the 2-year yield fell more sharply by nine basis points to 1.37%. The Chinese yuan appreciated by 1.9% against the US dollar during the quarter, closing at 6.99.

Bank Indonesia retains its focus on stability and growth

Indonesia (USD Unhedged: 0.8%)
Indonesia’s 10-year government bond yield fell by 25 basis points in December 2025, while Indonesian-rupiah returns were marginally negative at -0.1%. Inflation edged higher to 2.92% in December 2025 from 2.72% in November 2025, while labor market conditions improved, with unemployment declining to 4.85% in the third quarter of 2025. Manufacturing activity moderated but remained in expansion, as the S&P Global Manufacturing PMI survey eased to 51.2 from November 2025’s nine-month high of 53.3. Bank Indonesia kept its benchmark rate unchanged at 4.75% for the third consecutive policy meeting in December 2025, following cumulative cuts of 150 basis points since September 2024, reaffirming its accommodative stance to support the Indonesian rupiah and growth while maintaining inflation within the 2.5% ±1% target range.

Hong Kong mirrors the US with third rate cut of 2025

Hong Kong (USD Unhedged: -0.1%)
Hong Kong’s 10-year government bond yield rose by seven basis points in December 2025. Inflation remained steady at 1.2% in November 2025, unchanged from October 2025, while labor market conditions were stable, with the unemployment rate holding at 3.8% in the three months to November 2025. Business activity moderated but remained expansionary, as the S&P Global Hong Kong SAR PMI Survey eased to 51.9 in December 2025 from November 2025’s near three-year high. In line with US monetary policy, the HKMA cut its base rate by 25 basis points to 4.0% in December 2025, marking the third rate reduction of the year and bringing borrowing costs to their lowest level since October 2022 under the US-dollar currency peg.

Philippines lowers borrowing costs by 25 basis points

Philippines (USD Unhedged: -0.7%)
The Philippines’ 10-year government bond yield rose by 14 basis points in December 2025, while the Philippine peso detracted 0.3% from currency returns. Inflation picked up to 1.8% in December 2025 from 1.5% previously, exceeding expectations, while manufacturing conditions improved as the S&P Global Manufacturing PMI survey rose to 50.2 from 47.4, returning to expansion on the back of stronger new orders. Labor market conditions also strengthened, with unemployment falling to 4.4% in November 2025. Against this backdrop, BSP cut the policy rate by 25 basis points to 4.5% at its final meeting of the year, marking the fifth consecutive rate cut and bringing cumulative easing in 2025 to 125 basis points.

Footnotes

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