Asian bonds started the year on a positive note, with the Markit iBoxx ABF Pan-Asia Index (unhedged) returning +0.8% in January 2025. In US-dollar (USD)-hedged terms, Asian bonds delivered a +0.5% return with minor movements in the two-year and 10-year yields. Among markets, China’s 10-year yield declined by five basis points, while the Philippines and Hong Kong saw a 20 and 10 basis point increase in their 10-year yields, respectively. Asian currencies, on average, gained 0.3% in January 2025, rising for the first time in four months as the US dollar retreated from multi-decade highs.
SSGA Fixed Income Portfolio Strategists
Globally, policy easing expectations have moved lower, with market consensus predicting just two US federal fund rate cuts and three cuts, respectively, from the European Central Bank and the Bank of England in 2025. However, most Asian central banks are expected to maintain an accommodative monetary stance, with investors anticipating more rate cuts across several markets compared to the USA.
Market | Local Currency Bond Return | FX Return | Total Return (in USD) |
Korea | 1.0% | 1.3% | 2.4% |
Thailand | -0.1% | 1.5% | 1.4% |
Malaysia | 0.5% | 0.6% | 1.1% |
China | 0.4% | 0.5% | 0.9% |
Singapore | -0.1% | 0.3% | 0.2% |
Hong Kong | 0.5% | -0.4% | 0.1% |
Philippines | 0.9% | -0.9% | 0.0% |
Indonesia | 0.7% | -1.3% | -0.6% |
South Korea (USD unhedged: +2.4%): South Korea was the best-performing local-currency market in the iBoxx Pan-Asia Index. The 10-year government bond yield remained unchanged in January 2025, delivering a 1.0% return in Korean-won terms, with positive price and income components. Consumer inflation increased from 1.5% to 1.9% year on year in December 2024, surpassing the expected 1.7%. Other key economic data remained mixed as manufacturing contracted for the third consecutive month, while industrial production was weaker than anticipated. Trade data, on aggregate, contributed positively compared to expectations. Retail sales were also strong. The Bank of Korea (BoK) unexpectedly kept the key interest rate at 3.0% during its January 2025 policy meeting, compared to market predictions for a 25 basis point reduction. Investors expect three rate BoK rate cuts in 2025.
Thailand (USD unhedged: +1.4%): Thailand’s 10-year government bond yield rose by four basis points in January 2025, while the Thai baht appreciated by 1.5%, leading to positive USD-denominated returns. Consumer inflation rose from 0.95% to 1.23% year on year in December 2024. Other key economic indicators remained mixed with manufacturing-related activity continuing to improve. Trade data, on aggregate, was disappointing, while retail sales slowed from 21% to 15% in November 2024. The market expects the Bank of Thailand to cut interest rates by 30 basis points throughout 2025.
Malaysia (USD unhedged: +1.1%): Malaysia’s 10-year government bond yield edged down one basis point in January 2025, delivering a 0.5% return in Malaysian-ringgit terms. Consumer inflation decreased from 1.8% to 1.7% year on year in December 2024, its lowest point since January 2024, as prices for furnishing and housing eased. Economic data indicators remained mixed. The Manufacturing Purchasing Managers’ Index (PMI) survey contracted for the seventh straight month as new orders shrank, leading industrial production to slow down. Trade data, on aggregate, was lower than expected, as was gross domestic product (GDP) growth for the fourth quarter of 2024. Bank Negara Malaysia (BNM) held its overnight policy rate steady at 3.0% for the tenth consecutive meeting in January 2025, which aligned with market predictions. Investors do not anticipate a significant shift in the BNM’s key policy rate in 2025.
China (USD unhedged: +0.9%): China’s 10-year government bond yield slipped by five basis points in January 2025 to reach a fresh multi-decade low of 1.63%, delivering a 0.4% return in Chinese-yuan terms within the index, with positive price and income components. Economic indicators showed emerging deflationary pressures at the consumer level, as the annual inflation rate slid from 0.2% to 0.1% in December 2024, with prices easing across the household and healthcare segments. New home prices in 70 cities dropped by 5.3% year on year in December 2024, slowing from a 5.7% decline in the previous month. Other key economic data remained mixed as manufacturing-related activity expanded, while net trade and retail sales contributed positively. The People’s Bank of China (PBoC) maintained its one-year loan prime rate and the five-year mortgage reference rate at 3.1% and 3.6%, respectively. Market consensus expects the PBoC to maintain an accommodative policy stance in the near term.
Singapore (USD unhedged: +0.2%): January 2025 saw the ten-year government bond yield rise by six basis points, posting a -0.1% return in Singapore-dollar terms. The annual consumer inflation rate remained unchanged at 1.6% year on year in December 2024. Meanwhile, GDP data for the fourth quarter of 2024 declined compared to the levels seen in the third quarter of 2024 but remained well above market expectations (+4.3% vs. 3.8% expected, 5.4% prior). Other economic data was mixed. Manufacturing-related activity continued to expand. However, trade data, on aggregate, was disappointing, and retail sales remained lackluster. The Monetary Authority of Singapore switched to policy easing for the first time in five years, reducing the slope of the Singapore dollar nominal effective exchange rate (S$NEER) policy band following a faster-than-anticipated decline in core inflation.
Hong Kong (USD unhedged: +0.1%): Hong Kong’s 10-year government bond yield rose by 10 basis points in January 2025, yet delivered a 0.5% return in Hong Kong-dollar terms. Consumer inflation remained at 1.4% year on year in December 2024. Economic data indicators remained mixed, with the Global PMI survey continuing to improve. Trade data, on aggregate, contributed positively, while retail sales fell for the tenth consecutive month, posting their sharpest decline since August 2024. The Hong Kong Monetary Authority kept interest rates on hold, in line with the US Federal Reserve, though it guided that rates will stay higher for longer.
Philippines (USD unhedged: 0.0%): The 10-year government bond yield rose by 20 basis points in January 2025, posting a 0.9% return in Philippine-peso terms with positive price and income components. Consumer inflation increased from 2.5% to 2.9% year on year in December 2024. The Manufacturing PMI survey remained expansionary, while cash remittances were robust, and unemployment declined. However, GDP growth for the fourth quarter of 2024 was lower than anticipated. Market consensus expects the Bangko Sentral ng Pilipinas to maintain its policy-easing stance, predicting three 25 basis point rate cuts in 2025.
Indonesia (USD unhedged: -0.6%): Indonesia’s 10-year government bond yield held steady, delivering a 0.7% return in Indonesian rupiah terms. Consumer inflation plunged from 1.57% to 0.76% year on year in December 2024, marking the weakest reading since March 2000. The decline came amid a sharp fall in housing prices (-8.75%) due to the impact of 50% electricity discount tariffs. Other key economic data indicators were mixed. Manufacturing and production data turned expansionary, while net trade and retail sales were lower than anticipated. Bank Indonesia unexpectedly cut its benchmark interest rate by 25 basis points to 5.75% during its January 2025 meeting, defying market expectations for a pause.