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Asian government bonds have taken a hit over the past month from a stronger USD and rising Treasury yields. The DXY rose 3.1% and the 10Y UST rebounded by 47bps to 4.20%. The resilient US economy and Trump’s trade are supporting the respective upward marches. Additionally, potential tariffs from Trump’s trade are weighing on major Asia govvies and currencies. Note that US alone accounts for 10-19% of the exports of major Asia economies except Singapore and Hong Kong.
Amongst all, lower-yielding Asian govvies that have historically been most correlated with the US, like SGD and HKD rates, underperformed. The 10Y yields of both government bonds surged by around 30-40bps over the past month. The SGD depreciated 2.9% against the USD, while the HKD remained stable under its Linked Exchange Rate System. Meanwhile, South Korea's 10Y KTB yield only edged up 8bps but is expected to catch the uptrend. The weakening won may complicate the pace of rate cuts despite slowing growth. 3Q GDP growth came in weaker than expected at 1.5% YoY yesterday. On a side note, inclusion of KTBs into the WGBI in September 2025 will likely pose limited near-term impact.
MGS is one of the worst performers this month. The disappointment stemmed from higher inflation risk, where fiscal measures such as the broadening of the Sales & Service Tax and subsidy rationalization will kick-in in 2025. This could potentially challenge Bank Negara Malaysia’s extended pause. The higher-yielding 10Y IndoGB yield rose by 35 bps over the past month. The resilient growth momentum, driven by investment impetus and increased fiscal spending under the new government, could push long-end yields higher.
CNY and INR rates are the rare outperformers. The respective govvies yield inched up by 9bps and 6bps over the past month, while the currencies barely depreciated. CGBs yields remained steady amid the ongoing rate cuts. Meanwhile, IGBs were benefited from ongoing capital inflow via inclusion into the JPM GBI-EM GD Index.
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