Insights

How Will US Policy Impact Asian Bond Markets?

US tariffs and policy changes could disrupt Asian trade patterns, as well as its bond markets. To learn more, we take a closer look at the actions of the new US administration.

April 8, 2025 3 min read

Kheng Siang Ng, CFA, CAIA

Asia Pacific Head of Fixed Income, Head of SSGA Singapore

One way of measuring the potency of tariffs is to gauge a market’s exports to the US as a percentage of its GDP. Using this ratio, data shows that Vietnam, Taiwan, and Thailand are more exposed than, for instance, India and Indonesia.¹ The indirect consequences of tariffs also mean that levies on Canada and Mexico influence Asian economies that are part of a North American supply chain. Examples here include Malaysia and South Korea.²

In that vein, Singapore’s Trade Minister recently warned that the knock-on effects of a trade war could disrupt supply chains and slow regional trade and investment flows.³

Some Markets Have Announced Reciprocal Tariffs

When the US implemented tariffs of 25% on steel and aluminium imports, Canada announced that it would impose 25% retaliatory levies on the same metals and additional tariffs on computers and sports equipment.⁴ Other territories, like Australia, have decided against imposing punitive measures as it would increase the costs of consumer goods and stoke inflation.⁵

Meanwhile, China has decided to respond to the imposition of a blanket tariff of 20% on goods imported to the US by targeting a range of agricultural exports, like soybeans and logs, with a tariff of 15%. China has also identified goods it can source from alternative markets to help protect its domestic economy.⁶

China’s actions have been viewed as measured to avoid escalating the trade war, and its officials appear confident they have the fiscal tools required to counter any external or domestic challenges that emerge due to like-for-like levies.⁷

Declining Interest Rates Provide Asian Central Banks with Greater Flexibility

Asian central banks now have more latitude in reducing interest rates to bolster their domestic economies. Moreover, they appear comfortable with the risk of lower borrowing costs negatively affecting their respective currency values. Bank Indonesia chose to cut interest rates in January 2025, with the justification being weaker-than-expected growth and a low inflation outlook for 2026.⁸ Similarly, the Bank of Korea has embarked on interest rate cuts to support the domestic economy.⁹

Green Bond Issuance Will Likely Decline in the US

Tariffs aside, another move by President Trump’s administration is the unwinding of environmental protections and introducing policies designed to boost coal and oil-related industries. As a result, we could see a decline in the issuance of sustainable and green bonds.¹⁰ President Trump has withdrawn from the Paris Climate Agreement – as promised during his election campaign, which may also slow the sale of environment-related bonds in the US.¹¹

Closer to home, green bonds have proven popular with domestic investors in China, with the equivalent of US$19.14 billion issued in the third quarter of 2024 compared to US $ 17.49 billion during the same period. In Europe, lower interest rates should also help boost the green bond market by making it cheaper for issuers to sell these instruments.¹²

Possible Opportunities for Sustainable Fixed Income in Asia

China and much of Asia remain committed to developing sustainable bond markets, so global issuance levels may not decline severely. In fact, China recently announced plans to launch a sovereign yuan-denominated green bond in London to attract European investors.¹³ Furthermore, any contraction in the US green bond market may favor Asia as global investors may turn to the region to source ethically focused products.

Asian Bonds Should Prosper Despite Market Uncertainty

Following President Trump’s victory, most Asian bond markets saw some foreign-investor outflows.¹⁴ This was chiefly a reaction to uncertainty surrounding the implementation of tariffs and a surge in the value of the US dollar. Trade tariffs could also underpin inflation, meaning that the US Federal Reserve will slow the pace of cuts to ensure price rises remain under control.¹⁵

Despite these potential headwinds, Asian local-currency bonds should benefit from declining global interest rates, making it less expensive for governments and companies to issue bonds. At the same time, attempts by authorities across the region, particularly China, to boost their domestic economies should also support local fixed-income markets.¹⁶

Footnotes

Disclosure

All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.

Past performance is not a reliable indicator of future performance.

Diversification does not ensure a profit or guarantee against loss.

International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

The example mentioned is for illustrative purposes only.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.

Currency Risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

Assets may be considered "safe havens" based on investor perception that an asset's value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time

Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

The views expressed in this article are the views of Kheng-Siang Ng through the period ended 18 March 2025 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

This article is issued by State Street Global Advisors Singapore Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

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