Asian bonds delivered positive returns in February 2025, with the Markit iBoxx ABF Pan-Asia Index rising by +0.7% on a US-dollar-hedged basis, as 10-year yields declined by an average of 10 basis points across markets. However, market dispersion continued, with the Chinese 10-year government bond yield rising by 15 basis points during the month.
SSGA Fixed Income Portfolio Strategists
Yields fell by the most in Hong Kong (-23 basis points) and Singapore (-18 basis points), which aligned with movements in the US. Notably, after a peak in early January 2025, the US dollar continued to lose ground against major currencies in February 2025, driven by lower expectations for the federal funds rate: three 25 basis point rate cuts are now being factored in (based on federal funds futures pricing)
After a brief rebound in January 2025, Asian currencies modestly declined in February 2025 compared to the US dollar. This led the Markit iBoxx ABF Pan-Asia Index (unhedged) to return +0.3% during the month.
Global central bank monetary-policy easing continued in February 2025. The Bank of England cut its key policy rate for the third time in the current cycle, with market consensus expecting at least two more reductions in 2025. The Reserve Bank of Australia and Reserve Bank of India also reduced their borrowing costs for the first time since 2023. In Asia, the Bank of Korea trimmed interest rates by 25 basis points.
| Market | Local Currency Bond Return | FX Return | Total Return (in USD) |
| Singapore | 1.2% | 0.4% | 1.6% |
| Philippines | 0.7% | 0.7% | 1.3% |
| Hong Kong | 0.9% | 0.2% | 1.1% |
| Korea | 1.7% | -0.7% | 1.0% |
| Malaysia | 0.4% | -0.3% | 0.1% |
| Indonesia | 1.3% | -1.7% | -0.4% |
| Thailand | 1.3% | -1.6% | -0.4% |
| China | -0.8% | -0.3% | -1.1% |
Price Rises in Singapore Touch a Four-Year Low
Singapore (USD unhedged: +1.6%): Singapore’s 10-year government bond yield declined by 18 basis points, delivering a 1.2% return in Singapore-dollar terms, with positive income and price components. Consumer inflation fell from 1.5% to 1.2% year on year in January 2025, the lowest print since February 2021, led by weaker food and housing utilities prices. Other economic data was mixed as manufacturing-related activities continued to expand; trade data, on aggregate, disappointed; and retail sales remained lackluster.
Philippine Central Bank Keeps Borrowing Costs on Hold
Philippines (USD unhedged: +1.3%): The Philippine 10-year government bond yield edged down by 12 basis points, delivering a 0.7% return in Philippine-peso terms. Consumer inflation stood firm at 2.9% year on year in January 2025, and the Manufacturing Purchasing Managers’ Index (PMI) survey remained expansionary. However, net trade data, on aggregate, was disappointing. Meanwhile, unemployment fell from 3.2% to 3.1% in December 2024. The Bangko Sentral ng Pilipinas kept interest rates unchanged for the third consecutive period, defying market expectations for a 25 basis point rate cut, with the central bank’s board emphasizing domestic growth over global economic uncertainty.
Improving Trade Data in Hong Kong
Hong Kong (USD unhedged: +1.1%): Hong Kong’s 10-year government bond yield fell by 23 basis points, delivering a 0.9% return in Hong Kong-dollar terms. After holding steady for three months, consumer inflation rose from 1.4% to 2.0% year on year in January 2025, led by higher food and housing prices. Other economic indicators remained mixed, with trade data, on aggregate, contributing positively, while retail sales declined for an 11th consecutive month.
South Korean Consumer Inflation Moves Unexpectedly Higher
South Korea (USD unhedged: +1.0%): South Korea was the best-performing local-currency market in the iBoxx Pan-Asia Index. The 10-year government bond yield declined by 15 basis points, delivering a 1.7% return in Korean-won terms, with positive price and income components. Consumer inflation stood at a six-month high of 2.2% year on year in January 2025 (versus 1.9% in December 2024). This surpassed the 2.1% anticipated by the market. Other key economic releases remained mixed, as manufacturing data moved towards expansionary territory after three months of contraction; industrial production was better than expected; and trade data, on aggregate, contributed positively with robust retail sales.
Manufacturing Remains Lackluster and Retail Sales Slow
Malaysia (USD unhedged: +0.1%): Malaysia’s 10-year government bond yield declined by two basis points, delivering a 0.4% return in Malaysian-ringgit terms with positive income and price components. Consumer inflation remained unchanged at 1.7% year on year in January 2025. Meanwhile, other economic data indicators were mixed, with the Manufacturing PMI survey remaining in contractionary territory for the eighth straight month as new orders continued to shrink. Exports were muted, but imports exceeded expectations; the trade surplus plunged to its smallest margin since April 2020; and retail sales slowed across many sub-indices, led by the food and beverage segments.
Indonesia Enters Deflationary Territory
Indonesia (USD unhedged: -0.4%): Indonesia’s 10-year government bond yield declined by eight basis points, posting an Indonesian-rupiah return of 1.3% with positive price and income components. Consumer inflation slipped from 0.41% to -0.09% year on year in February 2025, marking the first deflationary reading since March 2000. This was primarily driven by a 12.08% fall in housing prices. Other key economic indicators were mixed, as manufacturing and production data remained expansionary; net trade data disappointed; and the trade surplus widened, which exceeded market expectations. Meanwhile, retail sales rose to 1.8% year on year in December 2024 (from an 11-month low of 0.9%).
Notable Dip in Thailand’s Retail Sales
Thailand (USD unhedged: -0.4%): Thailand’s 10-year government bond yield fell by 15 basis points, delivering a 1.3% return in Thai-baht terms with positive price and income components. Consumer inflation rose from 1.23% to 1.32% year on year in January 2025. As with other markets, key economic indicators were mixed, as manufacturing-related activities contracted; trade data, on aggregate, proved disappointing; and year-on-year retail sales sharply declined from 15.5% in November 2024 to 4.0% in December 2024.
Higher Food and Fuel Costs Underpin Inflation in China
China (USD unhedged: -1.1%): In US-dollar terms, China emerged as the weakest performer in the Markit iBoxx ABF Pan-Asia Index in February 2025. Meanwhile, the 10-year government bond yield rose by 15 basis points from an all-time low of 1.63%, thus delivering a -0.8% return in Chinese-yuan terms. Consumer inflation climbed from a 10-month low of 0.1% to a better-than-expected 0.5% year on year in January 2025, mainly due to food and fuel price hikes. New-home prices in 70 cities dropped by 5.0% in January 2025, slowing from a 5.3% decline the previous month – this was the softest fall since July 2024. The People’s Bank of China maintained its one-year loan-prime and five-year mortgage-reference rates at their lowest levels of 3.1% and 3.6%, respectively.