Asian Junk Bonds Return 4.3% YTD, Outperforming Over 20 Global Bond Categories
nashnova research
Asian high-yield dollar bonds have returned 4.3% this year — more than double the 2% from U.S. peers — and outperformed over twenty major bond indices tracked by Bloomberg. This means → in a year where most global bonds are struggling, Asian junk debt has become a rare pocket of positive returns.
Why are Asian junk bonds beating the world?
Two core drivers: China's borrowing costs near historic lows + faster relative economic growth across Asia. Together they have pushed default rates down sharply.
Credit spreads — the extra interest high-yield bonds pay over safe debt — narrowed to all-time lows last week. This means → the market sees default risk as minimal and is willing to accept a thinner premium.
Moody's data makes it vivid: through July this year, U.S. corporate defaults hit 43, EMEA reached 20, and Asia-Pacific recorded just 1.
How does China's low-rate environment support the whole market?
Chinese property developers once dominated Asian high-yield issuance, peaking above $50 billion in 2019. After the sector's downturn, that share collapsed.
Today even lower-rated Chinese firms can issue short-term local-currency bonds at roughly 1.7%. In plain terms = domestic money is so cheap that companies have little need to borrow dollars at high rates, which slashes default risk.
Asia ex-Japan non-financial high-yield dollar issuance this year is about $12 billion, up 20% year-on-year — but still dwarfed by the U.S. market's $220 billion-plus. This reflects a supply scarcity that itself supports prices.
Where is the biggest risk coming from?
The Fed's probability of hiking this week has risen + Middle East conflict is pushing oil prices higher + global inflation fears are resurfacing. More and more global bonds are slipping into negative returns.
Month-to-date, Chinese high-yield dollar bonds returned just 0.2%; Asian high-yield overall dipped 0.3% — still better than most categories, but momentum is fading.
A Fed hike would also pressure Asian central banks to tighten in step, curbing capital outflows but raising corporate funding costs. This means → the foundation of low defaults — "cheap money" — could be gradually eroded.
What are institutions saying about the outlook?
UOB Asset Management's Melvin Chan: investors may start moving up the credit curve toward higher-rated assets with lower default risk. In plain terms = those who have harvested high-yield gains are starting to play it safe.
Lombard Odier's Dhiraj Bajaj is more bullish: he expects high-single-digit returns for Asian high-yield this year and beyond, arguing most investors remain too conservative and pockets of value persist.
Citi's Rishi Jalan notes that if fundamentals hold, Asian high-yield issuance could pick up notably over the next year, with tech and data centers emerging as new growth areas. Spreads are already at historic lows; whether they hold depends on the Fed's policy path and Asian fundamentals moving in tandem.
The vast majority of Asian high-yield issuers can access local-currency funding at costs comparable to, or even lower than, offshore dollar financing. Current spread levels demand vigilance.
Mel Siew
Head of Asian Public Credit, Muzinich & Co
(2024 market commentary)
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