A weaker dollar is part of the backdrop. The US dollar index has fallen 6.3% ytd, with Eastspring noting that the greenback’s longer-term trajectory is clouded by widening fiscal deficits, the choice of the next US Federal Reserve chair in 2026 and any developments that could affect perceptions of Fed independence.
Asian bonds are drawing fresh interest as investors seek diversification from USD assets and look for stable income amid concerns over US growth, inflation and fiscal sustainability. “Slower growth, higher inflation and deteriorating fiscal sustainability in the US are leading bond investors globally to seek greater diversification, income and resilience,” according to Rong Ren Goh and Eric Fang, portfolio managers at Eastspring Investments, in a report dated Aug 13.
They add that “Asian USD bonds offer attractive all-in yields, positive credit fundamentals, and supportive technicals” while “Asia local currency bonds offer attractive real yields and potential currency upside” as regional rate cuts come through over the next 12 to 18 months.
