Insights

Asian Bonds Outpace Global Treasuries in 2024 Despite US Dollar Headwinds

Asian bonds lost ground in December 2024, with the Markit iBoxx ABF Pan-Asia index (unhedged) returning -1.1% during the month, taking performance for the fourth quarter (Q4) of 2024 to -5.0%. However, the index still outstripped the Bloomberg Global Treasury index, which was down by -6.0% in Q4 2024. Notably, the Markit iBoxx ABF Pan-Asia Index still delivered a positive +2.1% return in unhedged terms over 2024, compared to -3.6% from the Bloomberg Global Treasury index. Both indices ended 2024 with a similar yield to maturity (around 3.2%) and duration (around 7.2 years) profile, with only a single-notch average rating difference.

SSGA Fixed Income Portfolio Strategists

February 5, 2025 3 min read

In US-dollar (USD)-hedged terms, Asian bond returns remained strong, delivering a +7.9% return in 2024 (+0.4% in December, +1.2% in Q4 2024), significantly outperforming the Bloomberg Global Treasury index, which returned +3.0% in 2024. Asia 10-year bond yields, on average, declined by 15 basis points in Q4 and three basis points in 2024, leading to positive income and price returns.

However, the dispersion was wide, with China’s 10-year yield falling by 54 basis points in Q4 2024 and 89 basis points in 2024, ending significantly beneath 2.0%, a multi-decade low. Elsewhere, 10-year yields increased in five of the eight iBoxx ABF Pan-Asia index markets, rising by a significant 51 basis points and 48 basis points in Indonesia and Hong Kong, respectively. Unlike China, the overall yield to maturity of the index did not dip to low levels.

Notably, Asian currencies, on average, fell by more than 5.0% in 2024, with the Asia dollar index ending the year at its lowest levels in at least two decades. Most Asian markets switched to an accommodative monetary policy stance, cutting interest rates in 2024.

Market	Local Currency Bond Return	FX Return	Total Return (in USD)
Thailand	1.0%	0.4%	1.3%
China	2.0%	-1.0%	1.0%
Philippines	-0.7%	1.4%	0.7%
Hong Kong	-0.7%	0.3%	-0.5%
Malaysia	0.2%	-0.8%	-0.6%
Indonesia	-0.1%	-1.6%	-1.6%
Singapore	-0.5%	-1.5%	-2.0%
Korea	-1.2%	-5.2%	-6.3%

No Change in Thai Interest Rates

Thailand (USD unhedged: +1.3%) was the best performer in the Markit iBoxx ABF Pan-Asia Index, delivering +1.0% in Thai-baht terms as the 10-year bond yield fell by four basis points with positive price and income components. Consumer inflation rose to a six-month high of 0.95% year on year in November 2024. Other key economic data remained mixed, with the Manufacturing Purchasing Managers' Index (PMI) data expanding for the fourth straight month, its fastest since May 2023. Retail sales remained strong, while net trade contributed positively. However, auto sales continued to plunge to -31% year on year in November 2024, marking a consecutive 18-month decline due to surging household debt and significant loan tightening. At its final policy meeting of 2024, the Bank of Thailand kept its key interest rate unchanged at 2.25%, with market consensus expecting a rate cut in the first quarter of 2025.

China’s Long-Term Yield Touches Record Low

China (USD unhedged: +1.0%) recorded a Chinese-yuan return of +2.0% with positive income and price components. The 10-year bond yield fell by 36 basis points, marking a historic low of 1.69%. Consumer inflation unexpectedly fell from 0.3% to 0.2% year on year in November 2024, failing to meet the expected 0.5%. Other key economic indicators remained mixed. The Manufacturing PMI survey rose to a seven-month high, and industrial production was better than predicted. However, retail sales disappointed as household purchases eased. House prices dropped for the 17th consecutive month, shrinking by 5.7% in most major cities. The People’s Bank of China kept interest rates unchanged at its December 2024 policy meeting. However, market consensus anticipates that easier monetary policy will continue in 2025, including cuts to the reserve requirement ratio (the amount of money banks must keep in reserve).

Trade Deficit Touches USD 5.8 Billion in the Philippines

Philippines (USD unhedged: +0.7%) posted a negative Philippine-peso return of -0.7% as the 10-year bond yield rose by 13 basis points. Consumer inflation climbed from 2.3% to 2.5% year on year in November 2024. Economic data indicators remained mixed. The Manufacturing PMI survey continued to expand at the strongest pace since the first quarter of 2022. However, the trade deficit increased to USD 5.8 billion in October 2024, its largest since August 2022, as exports fell to -5.5% and imports climbed to 11.2%. Bangko Sentral Ng Pilipinas cut the benchmark interest rate by 25 basis points to 5.75% at its December 2024 policy meeting, which was in line with market expectations, with investors anticipating three further interest rate cuts in 2025.

Hong Kong Posts Uneven Economic Data

Hong Kong (USD unhedged: -0.5%) saw its 10-year bond yields rise by 43 basis points, fueling a -0.7% return in the Hong Kong-dollar market. Consumer inflation in November 2024 remained stable at 1.4% year on year. Economic data indicators were mixed. The Global PMI marked a second consecutive month of private sector expansion. However, growth in new business softened as demand from both Mainland China and international markets weakened, leading to slower output growth. Manufacturing activities marked the first fall since Q4 2022, while the trade deficit widened sharply to USD 43.3 billion in November 2024 as imports climbed by 5.5% and exports remained in a downtrend. The Hong Kong Monetary Authority slashed its base rate by 25 basis points to 4.75% on 19 December 2024 after the US Federal Reserve trimmed its interest rates.

Larger-Than-Expected Drop in Malaysian Inflation

Malaysia (USD unhedged: -0.6%) delivered a 0.2% positive return in the Malaysian-ringgit (MYR) market, as the 10-year bond yield remained unchanged. Consumer inflation edged down to 1.8% from 1.9% year on year in November 2024, below the expected 2.1%. Price pressures eased within the transport and health sectors, while the Manufacturing PMI survey registered its seventh consecutive month of contraction, and industrial production saw its smallest rise in 10 months. However, retail sales were strong, advancing to 7.1% year on year in October 2024, driven by household equipment. Malaysia’s trade surplus widened to MYR 15.3 billion year on year in November 2024, its largest since September 2023.

Notable Rally in Indonesia’s Trade Surplus

Indonesia (USD unhedged: -1.6%) posted a marginally negative return of -0.07% in the Indonesian-rupiah market driven by an 11-basis point increase in the 10-year yield. Consumer inflation eased from 1.71% to 1.55% year on year in November 2024, slightly above the expected 1.50%. Manufacturing and production data remained lackluster. Retail sales sharply eased from 4.8% to 1.5% year on year in October 2024, caused by a notable slowdown in food sales. The trade surplus rallied to USD 4.4 billion in November 2024, marking the most significant level since July, mainly due to a surge in exports. Money supply continued to hit a new all-time high. Bank Indonesia maintained its benchmark interest rate at 6.0% at its December 2024 policy meeting, aligning with market expectations. Investors do not expect a policy change in 2025.

Recovery in Singapore’s Consumer Inflation Rate

Singapore (USD unhedged: -2.0%) delivered a -0.5% return in the Singapore-dollar market as the 10-year yield rose by 10 basis points. Consumer inflation climbed from a 42-month low of 1.4% to 1.6% year on year in November 2024. The Private Sector PMI survey slowed as output and new orders eased. Manufacturing-related activities remained healthy, while retail sales saw the steepest decline in seven months. Trade data, on aggregate, disappointed.

Political Factors Impact the South Korea Market

South Korea (USD unhedged: -6.3%) saw a Korean won return of -1.2% fueled by a nine basis point rise in the 10-year bond yield. Consumer inflation edged up from 1.3% to 1.5% year on year in November 2024. The Manufacturing PMI survey regained its expansionary track alongside production data. However, headlines around the brief imposition of martial law continued to impact financial markets and added to sovereign-rating risk. The Korean won declined by 5.2% in December 2024, the lowest since 1998. Although such currency weakness may result in upward inflationary pressures, the Bank of Korea continued to guide toward a more flexible monetary policy against persistent political and economic uncertainty. Market consensus expects 75 basis points of policy rate cuts in 2025.

Footnotes

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