Asian Bond markets carrying demand into 2020
(19 November 2019 – Asia) State Street finds that although headwinds in debt capital markets remain, including the possibility of a negative outcome from US-China negotiations and rising political risk in some Asian countries, the softening global economy will maintain investors’ hunt for yield with Asian bonds likely to play a vital role in the solution.
The year’s key themes at the outset of 2019 surrounding slowing global growth, ongoing US-China trade tensions and US Federal Reserve’s monetary policy tightening continues to feature prominently in markets towards the conclusion of Q4 with one significant exception being the shift in the stance of global central banks from a hawkish to a more dovish bearing and the resumption of lower for longer theme. A slowing economy has pushed down bond yields across the world, so much so that now $17 trillion of bonds offer negative yields, compared with $8.3 trillion at the end of 20181. However, this provides a strong backdrop for Asian bonds, which continue to offer a positive and higher yield compared with their peers. Adding to this is expectations for further easing from the Fed, which is supportive of bonds and currencies in this region, while a dovish stance from Asian central banks can boost local fixed income markets.
“Another factor likely to drive demand for this asset class is the long-term favourable market development. The Asian bond market is simultaneously becoming more liquid and maturing. Earlier this year and until the end of 2020, China reached a milestone as the process of adding onshore Chinese bonds to major fixed income indices began, a major step to integrate the market with the broader universe of global fixed income. On the back of Bloomberg Barclays bond indices including China bonds into their major indices earlier this year, JPMorgan also announced that their major bond indices will start to include China bonds at the end of February in 2020” stated State Street Global Advisors Asia Pacific Head of Fixed Income, Kheng-Siang Ng
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