Upbeat Start to 2026 for Asian Local-Currency Bonds

The iBoxx ABF Pan Asia Bond Index began 2026 on a positive note, with the US-dollar unhedged index gaining 0.46%, supported by broad-based strength across Asian currencies. In contrast, the US-dollar hedged index declined by 0.15%. Bond yield movements across the region were mixed, reflecting varying domestic economic conditions and policy trajectories.

On average, 10-year government bond yields rose by 10 basis points, though market-level performance diverged significantly. Thailand (+36 basis points), Indonesia (+27 basis points), and South Korea (+23 basis points) saw notable increases in yields, while Singapore (-5 basis points), China (-4 basis points), and the Philippines (-3 basis points) recorded mild declines. Monetary policy developments were relatively subdued in January 2026. Most Asian central banks kept their benchmark rates on hold, maintaining a cautious posture amid uneven economic data and ongoing uncertainty.

Malaysia’s Economic Growth Gathers Pace

Malaysia (USD Unhedged: 3.2%)
Malaysia’s 10-year government bond yield remained broadly stable in January 2026, while a notable strengthening of the Malaysian ringgit added approximately 3.0% to returns. Annual inflation rose to 1.6% in December 2025, above both November 2025’s reading and market expectations of 1.4%, marking the highest level since January 2025 as price pressures increased across most components. The S&P Global Manufacturing Purchasing Managers' Index (PMI) survey inched up to 50.2 in January 2026 from 50.1 in December 2025, its third consecutive month of expansion and the strongest level since May 2024, supported by a rebound in output and improving demand conditions. Economic growth accelerated to 5.7% year on year (y/y) in the fourth quarter of 2025, compared with 5.2% in the third quarter of 2025, reaching its fastest pace since the second quarter of 2024, according to flash estimates. Meanwhile, Bank Negara Malaysia kept its benchmark interest rate unchanged at 2.75% for a third straight meeting in January 2026, aligning with market expectations and affirming that the stance remains appropriate to support economic growth amid stable inflation.

Stable Economic Newsflow in Singapore

Singapore (USD Unhedged: 2.5%)
Singapore’s 10-year government bond yield fell by five basis points in January 2026, while Singapore-dollar appreciation added a further 1.6% to returns. The annual inflation rate remained steady at 1.2% in December 2025, for the third consecutive month, in line with market expectations. The Manufacturing PMI survey inched up to 50.5 in January 2026 from 50.3 in December 2025, extending six months of mild expansion. The seasonally adjusted unemployment rate held firm at 2.0% in the fourth quarter of 2025, unchanged from the previous quarter, according to preliminary data. Singapore’s economy grew by 5.0% in 2025, moderating from 5.3% in 2024 but surpassing the Ministry of Trade and Industry’s advance estimate of 4.8%. Meanwhile, the benchmark interest rate stood at 0.91%, compared with a long-term average of 1.25% since 1988.

Growth Eases Amid Record-Low Policy Rates

China (USD Unhedged: 1.0%)
China’s economy grew by 4.5% y/y in the fourth quarter of 2025, down from 4.8% in the third quarter of 2025, marking its slowest expansion in nearly three years, though full-year growth met the 5.0% target. China’s bond markets had a mixed start to 2026. The sovereign yield curve bull flattened (where long-term interest rates fall at a faster pace than short-term interest rates), with the 10-year yield declining by around four basis points to 1.81% and the two-year yield increasing by around one basis point to 1.37%. The Chinese yuan remained broadly stable at around 6.96 per US dollar, posting a slight year-to-date gain (+0.45%). Inflation continued to normalize, as the annual inflation rate rose to 0.8% in December 2025 from 0.7% in November 2025. Producer price index deflation narrowed to –1.9%, signaling easing price pressures. Activity indicators softened, with the official NBS manufacturing PMI survey falling back into contractionary territory at 49.3, while the services PMI survey retreated to 49.4. However, the RatingDog China General Manufacturing PMI survey showed a mild expansion at 50.3. Fixed-asset investment remained under pressure, with the full-year 2025 number contracting by 3.8% and property investment plunging by 17.2%, underscoring persistent real-estate stress. External trade remained resilient, with exports up by 6.6% y/y in 2025, supported by stronger shipments to non-US markets. Labor conditions were broadly stable, as urban unemployment remained at 5.1% in December 2025. The People’s Bank of China (PBoC) kept its policy rates at record lows for the eighth consecutive month in January 2026. The one-year loan prime rate and the five-year mortgage reference rate were maintained at 3.0% and 3.5%, respectively. The PBoC announced 25 basis point cuts to sector-specific interest rates (effective 19 January 2026) to provide an early boost to the economy and signaled room for broader rate and reserve requirement ratio (the amount of money banks are required to keep on reserve) cuts later in 2026.

Accelerating Production but Fourth-Quarter Growth Eases

Philippines (USD Unhedged: 0.9%)
The Philippines’ 10-year government bond yield slipped by three basis points in January 2026, while a slight depreciation of the Philippine peso detracted 0.1% from currency returns. Annual inflation rose to 2.0% in January 2026, surpassing both market expectations and December 2025’s 1.8%. The S&P Global Philippines Manufacturing PMI survey climbed sharply to 52.9 from 50.2, its highest reading since April 2025, signaling stronger manufacturing momentum. The unemployment rate held steady at 4.4% in December 2025, reflecting stable labor market conditions. Economic growth declined to 3.0% year on year in the fourth quarter of 2025, falling short of the 3.8% consensus and easing from 3.9% in the previous quarter. Looking ahead, markets anticipate another 25 basis point rate cut by the central bank at its February 2026 meeting as policymakers balance softer growth with an improving inflationary outlook.

Hong Kong Sees Healthier Business Flows

Hong Kong (USD Unhedged: -0.1%)
Hong Kong’s 10-year government bond yield rose by nine basis points in January 2026, while annual inflation increased to 1.4%, the highest since June 2025 and up from 1.2% in November 2025, driven mainly by faster price gains in transportation and miscellaneous services, alongside smaller declines in the cost of clothing, footwear, and durable goods. Preliminary data showed that the economy expanded by 3.8% y/y in the fourth quarter of 2025, slightly above the revised 3.7% growth seen in the third quarter of 2025. The S&P Global Hong Kong SAR PMI survey improved to 52.3 in January 2026 from December 2025’s three-month low of 51.9, marking a sixth consecutive month of expansion supported by stronger new business inflows. Meanwhile, the Hong Kong Monetary Authority kept its base rate unchanged at 4.0% on 29 January 2026, following the US Federal Reserve’s decision to maintain its target range at 3.5%–3.75% earlier the same day.

Rising Consumer Prices and Improving GDP Growth

Indonesia (USD Unhedged: -1.0%)
Indonesia’s 10-year government bond yield rose by 27 basis points in January 2026, while Indonesian-rupiah returns were slightly negative at -0.7%. Annual inflation accelerated to 3.55% in January 2026 from 2.92% in December 2025, reaching its highest level since May 2023. The S&P Global Manufacturing PMI survey strengthened to 52.6 from 51.2, marking a sixth consecutive month of expansion and signaling solid growth in factory activity. Indonesia’s gross domestic product (GDP) grew by 5.39% year on year in the fourth quarter of 2025, up from 5.04% in the previous quarter and exceeding market expectations of 5.01%. Meanwhile, Bank Indonesia kept its benchmark interest rate unchanged at 4.75% for a fourth straight meeting in January 2026, aligning with expectations, as policymakers prioritized currency stability amid signs of moderating economic momentum.

Inflation Softens Amid Modest Growth

South Korea (USD Unhedged: -1.8%)
South Korea’s 10-year government bond yield rose by 23 basis points in January 2026, while a slight appreciation of the South Korean won added 0.1% to returns. Inflation eased to 2.0% in January 2026 from 2.3% in December 2025, marking the lowest level since August 2025. South Korea’s GDP grew by 1.5% y/y in the fourth quarter of 2025, reflecting modest economic momentum. The S&P Global Manufacturing PMI survey rose to 51.2 from 50.1, its highest level since August 2024, supported by stronger demand from the Chinese Mainland, North America, and Europe. The Bank of Korea kept its base rate unchanged at 2.5% for a fifth straight meeting, in line with market expectations.

Manufacturing Momentum Persists in Thailand

Thailand (USD Unhedged: -2.9%)
Thailand’s 10-year government bond yield rose by 36 basis points in January 2026, while a modest appreciation of the Thai baht added 0.4% to returns. The S&P Global Thailand Manufacturing PMI survey eased to 52.7 in January 2026 from December 2025’s two and a half year high of 57.4, indicating a slower but still solid expansion in factory activity. Thailand’s Finance Ministry now expects the economy to grow by 2.2% in 2025, down from its earlier 2.4% forecast and slightly below the 2.5% growth achieved in 2024, reflecting softer exports and cooling domestic demand. Meanwhile, consumer prices fell by 0.66% y/y in January 2026, a steeper decline than the expected 0.4% drop and widening from December 2025’s 0.38% decrease.