2025 Q4 Market Outlook - Bonds in Motion : Unlocking Value in Asia's Bond Markets

The U.S. Federal Reserve has cut rates, with further room for easing — helping drive capital toward risk assets
A steepening U.S. Treasury yield curve, supply shortage, and active bond redemptions are all supportive of Asian investment-grade bonds, especially long-duration papers
Valuations remain attractive across South Korean financials, China's technology, media and telecommunications (TMT) sector, and Indonesian quasi-sovereign investment-grade dollar bonds
Asian high-yield dollar bonds offer compelling yields and stable credit fundamentals, with notable opportunities in Indian renewable energy, Chinese industrials, and Macau gaming

Macro Environment and Policy Outlook

Despite elevated inflation in the U.S., the Federal Reserve cut interest rates by 25 basis points in September, as widely anticipated, to mitigate downside risks in the labor market. The Fed also signaled the possibility of two additional rate cuts before year-end. This easing bias supports longer-duration Asian investment-grade bonds, which are already benefiting from limited supply and early redemptions by regional corporates — creating favorable technical conditions for the segment. As liquidity shifts toward risk assets, Asian high-yield dollar bonds are also poised to gain support.

BEA Union Investment team sees abundant opportunities across Asian credit markets. Areas of focus include South Korean financials, Chinese TMT, and Indonesian quasi-sovereign dollar bonds. In the high-yield space, Indian renewable energy, Chinese industrials, and Macau gaming sectors stand out.

Asian High-Yield Bonds have a Diverse Universe

Source: BEA Union Investment, as at 31 Jul 2025

Asian Investment-Grade Bonds

Asian investment-grade dollar bonds — particularly long-duration papers — are expected to perform well, supported by anticipated rate cuts, constrained issuance, and corporate buybacks. With Fed Chair Powell signaling further easing, the U.S. Treasury yield curve is expected to steepen. From a technical standpoint, net issuance of Asian dollar bonds has been negative for three consecutive years and is likely to remain subdued. Notably, 30-year bonds accounted for just 1% and 3% of new issuance in 2023 and 2024, respectively. Given Asia’s relatively low inflation, most regional central banks have adopted accommodative monetary policies. This enables corporates to raise funds domestically at lower costs to repurchase dollar bonds — some even offering buybacks at a premium, generating alpha for investors.

Source：Investing.com, as of 11 Sep 2025

South Korean Financials: Strong Fundamentals and Attractive Yields

South Korean financials with BBB credit ratings offer a broad spectrum of opportunities, including banks and brokerages. The four leading domestic banks maintain low non-performing loan ratios and rising Common Equity Tier 1 (CET1) ratios, reflecting solid asset quality. Overall, South Korean financial bonds present compelling valuations, supported by prudent risk and capital management. Additional Tier 1 and Tier 2 bonds from high-quality banks also offer yields that exceed those of regional peers in Thailand, India, and China.

China TMT: Improving Credit Profile and Tightening Spreads

As China’s macroeconomic backdrop stabilizes and supportive policies are implemented, credit fundamentals in the TMT sector are showing signs of improvement. Spreads have tightened since April, yet yields remain attractive compared to similarly rated state-owned enterprises. Industry leaders continue to grow revenue and maintain strong net cash positions, supporting robust debt servicing capacity.

With accommodative onshore monetary policy, TMT firms can raise funds domestically at lower costs, reducing reliance on dollar bond issuance. Given strong demand and limited supply, the outlook for long-dated bonds in this sector remains positive.

Indonesia Quasi-Sovereigns: Attractive Valuations Amid Political Shifts

Indonesia’s recent cabinet reshuffle — including the removal of Finance Minister Sri Mulyani Indrawati — has raised concerns about fiscal discipline. Her successor may adopt a more expansionary stance, potentially increasing debt issuance to support the President’s economic agenda. This uncertainty triggered sell-offs in bonds, equities, and the rupiah, prompting central bank intervention.

Nonetheless, Indonesia’s macro fundamentals remain sound, with foreign reserves exceeding US$150 billion as of end-August. The new Finance Minister has pledged to maintain prudent fiscal policies and adhere to the 3% deficit ceiling. Given attractive valuations and limited new issuance, BEA Union Investment continues to favor long-dated quasi-sovereign dollar bonds, particularly in the energy and oil sectors. However, investors should monitor political developments closely.

Asian High-Yield Bonds

Asian high-yield dollar corporate bonds offer a diverse investment universe, attractive yields relative to global peers, and low correlation with global assets. Credit fundamentals remain stable, with an average rating of BB-. The market anticipates a default rate of just 2.3% this year. Combined with limited new supply, these factors provide technical and credit support for bond prices.

India: Sovereign Upgrade and Resilient Renewable Energy Sector

Despite ongoing tariff tensions with the U.S., Indian high-yield bonds remain attractive. Investors can avoid tariff-impacted sectors and focus on renewable energy providers, which build domestic wind and solar projects and generate local revenue. The sector benefits from strong fundamentals and sustained government support, facilitating financing through multiple channels.

S&P’s recent upgrade of India’s sovereign credit rating to BBB reflects economic resilience, fiscal consolidation, and infrastructure investment — all of which support the high-yield dollar bond market.

China Industrials: Idiosyncratic Drivers and Solid Credit Quality

Our team maintain a positive outlook on China’s industrial dollar bonds, supported by company-specific catalysts. For example, a Chinese aluminum producer recently reported strong earnings, boosting bond performance. Separately, Abu Dhabi Investment Authority pledged up to US$1.5 billion to fund a logistics and digital infrastructure firm, which had earlier sold its asset management business for US$5.2 billion and used part of the proceeds to repay debt — demonstrating solid credit fundamentals. With yields to maturity ranging from 5–9%, the sector offers compelling investment potential.

Macau Gaming: Rising Revenue and Strong Fundamentals

Macau's gaming revenue rose 12.2% year-on-year in August to MOP 22.156 billion, exceeding MOP 20 billion for the fourth consecutive month. The market expects second-half revenue to grow 13% year-on-year, driven by renminbi appreciation and rising demand from affluent mainland Chinese visitors.

We remain positive on Macau gaming bonds for their solid macro fundamentals, attractive yields of 5–7%, and insulation from tariff risks. A recent US$1 billion bond issuance maturing in 2034 was oversubscribed, while the issuer also tendered US$1 billion of 2026 bonds — a liability management move that further strengthens credit quality.

Conclusion

As US rates are likely to continue their downward trajectory, liquidity is set to flow into risk assets. Asian high-yield dollar bonds offer a diverse investment universe across multiple markets and sectors. Moreover, strong credit fundamentals, a manageable default rate, and limited supply provide support to bond prices from both technical and credit perspectives.