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A monthly review and outlook of the Asian Quality Bond market.
Market review - as at April 2025
April was marked by tariff-driven volatility. The 10-year US benchmark interest rate experienced a modest decline of 4 basis points (bps), settling at 4.16%. However, this small net change masks the dramatic fluctuations throughout the month. Early April saw UST 10-year yields dip below 4%, only to surge to 4.48% within a week, driven by market reactions to President Trump’s unexpectedly stringent “Liberation Day” tariffs.
The 2s-10s of the US Treasury curve steepened by 24 basis points. Investors reacting to the heightened risk environment shifted their focus from long-dated bonds to shorter-term maturities. This shift was evident in the 2-year US interest rate, which fell by 28 basis points to end the month at 3.73%.
Compared to other investment-grade bond sectors, Investment Grade (IG) USD Asian bonds’ spreads saw lesser volatility, with spreads ending at 133bps, 11bps wider than the previous month. Relatively high carry still helped Asian IG credits return a +0.25% in positive returns over the month.
China’s significant tariff shocks, far in excess of those in 2018-19, as well as the sovereign’s tit-for-tat retaliation measures, tanked growth expectations globally. An exodus of selling caused spreads to decompress across the board, before market stability gradually returned on Trump’s partial relaxation of tariffs a week later. In Indian Corporates, the Adani curve fell up to 2 points lower over the course of the month. Parallel to news of tariffs, Fitch downgraded China’s sovereign rating to A from A+ on concerns over weakening finances and rising public debt. Alibaba bonds were likewise downgraded to A by Fitch to reflect China’s sovereign rating, but Meituan was upgraded to BBB+ from BBB on improving fundamentals. Moody’s revised its sovereign outlook on Thailand’s Baa1 rating to negative, due to the anticipated tariff impact on Thailand’s economy. Thailand financials saw spreads widen on downside risks to credit ratings. In HK Industrials, CK Hutchison announced that it would not proceed with divesting its two Panama ports, after concerns from China due to geopolitical issues.
In Asian IG sovereigns, Indonesia’s newly established Sovereign Wealth Fund (SWF) - Danantara, continued to see spreads weighed down by the SWF’s management oversight and Indonesia’s fiscal discipline concerns.
Given heightened risk-off sentiments, issuance activity in the Asian USD primary market decreased from March’s levels. Notable issuers included POSCO’s and Kookmin Bank’s respective USD700bn issuances. Year to date, issuances from China, Korea, and Hong Kong have been the largest contributors to new bond supply.
Source : Company data, First Sentier Investors, as of end of April 2025
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