Yield Dispersion Rises Across Asian Bond Markets

Asian bonds delivered a positive return in November 2024 in US-dollar-hedged terms, with the Markit iBoxx ABF Pan-Asia Index rising by +1.1% during the month. On average, bond yields in Asia declined by five basis points. However, there was a considerable divergence in performance across Asian markets, with ten-year yields rising in Hong Kong, Indonesia and the Philippines and falling in China, Singapore, Malaysia, and Thailand. The most significant drop was seen in South Korea (34 basis points), which came amid a rise in political uncertainty following the presidential impeachment motion. Notably, China’s ten-year yield closed at a multi-decade low level in November 2024 despite better-than-expected economic data releases.

The Markit iBoxx ABF Pan-Asia Index returned -0.2% in unhedged terms, as Asian currencies declined against the US dollar by around 1.3%, on average, in November 2024 amid expectations for higher US interest rates in 2025 and further monetary policy easing in several Asian markets. Notably, the Asia dollar index, which gauges the prices of a broad range of Asian currencies against the US dollar, closed the month at almost its lowest level in two decades.

Further Rate Cut in South Korea

South Korea (USD unhedged: +1.8%) was the best-performing market in the Markit iBoxx ABF Pan-Asia Index, as the ten-year yield declined by 34 basis points, leading to a Korean won return of 2.9%. However, the Korean won fell by 1.1% in November 2024, with rising political uncertainty (and its associated macroeconomic implications) the key return driver of bond and currency prices. The Bank of Korea (BoK) cut interest rates to 3% in November 2024, its second reduction in as many months. The BoK also sought to reassure investors and create stability by providing liquidity injections to help bond and currency markets navigate the political uncertainty. Investors expect three further interest rate cuts in 2025. Other economic newsflow remained mixed, as manufacturing data contracted for a second consecutive month while consumer inflation edged down from 1.6% to 1.3% year on year in October 2024, below the expected 1.4%.

Thailand Posts Healthy Export Growth

Thailand (USD unhedged: -0.1%) recorded a positive Thai baht return of 1.4%, as the 10-year bond yield fell by 12 basis points. Annual inflation in October 2024 rose from 0.61% to 0.83%, marginally lower than expected. Other key economic indicators remained mixed, with a slowdown in manufacturing-related activity. However, imports were at a 28-month high, led by robust domestic demand for raw materials and fuel. Export growth was also strong, registering a 16-month high. With the interest-rate-reduction cycle starting in October 2024, investors expect one additional rate cut in the first quarter of 2025.

Hong Kong’s Long-Term Yield Bucks the Global Trend

Hong Kong (USD unhedged: -0.2%) delivered a muted return in Hong Kong-dollar terms, with the 10-year bond yield increasing by 14 basis points. This was in contrast to the global trend of declining yields. Annual inflation slumped from 2.2% to 1.4% in October 2024, surpassing the expected 1.7%. Economic data releases indicated slower-than-expected downward momentum, with retail sales falling by 4.9% year on year versus the expected 7.7% decline. In October 2024, the Hong Kong Monetary Authority lowered interest rates to 5%, in line with the US Federal Reserve.

Soft Economic Data in Malaysia

Malaysia (USD unhedged: -0.4%) The 10-year bond yield in Malaysia fell by 11 basis points, leading to a 0.9% return in Malaysian-ringgit terms. The Malaysia ringgit itself declined by 1.3% amid broader US-dollar strength. Annual consumer inflation for October 2024 aligned with expectations, rising modestly from 1.8% to 1.9%. Economic data releases were moderately weaker than expected, with the manufacturing Purchasing Managers’ Index (PMI) survey contracting for a fifth month as new orders shrank. In November 2024, Bank Negara Malaysia kept interest rates unaltered at 3% for the ninth consecutive month (aligning with market expectations) with no interest rate changes anticipated in 2025.

Improvements in China’s Economic Data

China (USD unhedged: -0.6%) recorded a positive return of 0.9% in Chinese-yuan terms as the 10-year bond yield fell by 12 basis points to a historic low. Economic data releases were generally better than expected in November 2024, improving by the most since the end of May 2024. Manufacturing activity surveys, trade numbers, and retail sales were all surprisingly healthy, as was money-supply data. However, consumer inflation data was surprisingly soft, and producer prices indicated a deflationary trend. At its November 2024 policy meeting, the People’s Bank of China kept interest rates unchanged. However, market participants expect policy easing to continue in 2025 (including cuts to key policy rates and the amount of money banks must keep in reserve). Chinese lawmakers also approved a State Council bill that authorised an increase in the local government debt ceiling.

Indonesia’s Policy Rate Remains Unchanged

Indonesia (USD unhedged: -0.7%) posted a positive return of 0.2% in Indonesian-rupiah terms, with the 10-year yield rising by nine basis points. Annual inflation for October 2024 eased from 1.8% to 1.7%. Other key economic newsflow was mixed, with stronger-than-anticipated trade data and third-quarter gross domestic product (GDP) growth that was mostly in line with estimates (4.95% year-on-year growth versus an expected 5%). However, retail sales missed expectations, while manufacturing surveys indicated a slowdown. At its November 2024 policy meeting, the Bank of Indonesia maintained interest rates at 6%, as widely predicted. However, a rate cut is forecast at the central bank’s December 2024 policy meeting, with investors eyeing two further reductions in 2025.

Notable Decline in Singapore’s Inflation Rate

Singapore (USD unhedged: -1.0%) delivered a 0.2% positive return in Singapore-dollar terms as the 10-year bond yield fell by six basis points. The annual consumer inflation data print for October 2024 dropped steeply from 2% to 1.4% (versus the expected 1.8%) – the lowest since the first quarter of 2021 – with the decline stemming from lower housing and utility costs. Other key economic data was also sluggish, with slower manufacturing-related activity and a contraction in exports. Almost 33% of professional forecasters expect a reduction in the slope of the Singapore dollar nominal effective exchange rate (S$NEER) at the Monetary Authority of Singapore’s January policy review meeting (versus 50% in the previous survey).

Further Rate Cuts Predicted in the Philippines

Philippines (USD unhedged: -1.1%) delivered the lowest return in the Markit iBoxx ABF Pan-Asia Index in November 2024. The Philippine peso return stood at -0.2%, driven by a nine basis point rise in the 10-year bond yield. Annual inflation in October 2024 rose from 1.9% to 2.3%, which was in line with expectations. Unemployment reduced from 4% to 3.7%, although trade data remained mixed. After two interest-rate reductions in 2024, investors expect a third cut in December 2024 and three further reductions in 2025.