Funds Pile Into Southeast Asian Bonds Even at Record Low Yields

Mint

12-06-2025

(Bloomberg) -- Investors are making a beeline for Southeast Asian sovereign bonds despite their record low yields amid a shift away from US assets and on bets for further interest-rate cuts in the region.
The average of 10-year yields in Southeast Asian nations relative to US Treasuries has dropped to the lowest in data going back to 2011, according to Bloomberg calculations. The region's bonds are benefiting from investors seeking alternatives to US assets as part of the 'sell America' trade fueled by unease over President Donald Trump's policies.
A souring outlook on the dollar is providing another tailwind for Southeast Asian bonds. It's boosting local currencies, thereby opening the door for the region's central banks to cut interest rates to support their economies without spurring capital outflows.
'Southeast Asian bonds will continue to benefit from a re-allocation of flows away from dollar assets as the growth and inflation outlook in the region still requires more policy support from central banks,' said Eugene Leow, a fixed-income strategist at DBS Bank Ltd. in Singapore.
'The region's bonds are also still under-owned by foreigners, and have much room to grow back to where they were pre-pandemic,' he added.
Foreign demand for Southeast Asian bonds has been robust this quarter, with Malaysia receiving close to $5 billion over this period amid wagers that the nation's central bank, the last rate-cut holdout in the region, would make a move in July. Global funds have also poured $1.4 billion and $2.4 billion, respectively, into Thai and Indonesian bonds since April to put them on track for their largest inflows in at least three quarters.
It's not just the hunt for returns that's supporting Southeast Asian bonds, some funds are also looking at Singapore's debt as an alternate safe haven to Treasuries that are being weighed by concern over a spiraling debt and deficits.
'Moody's Ratings downgrade of the US sovereign does highlight the relative fiscal health of Singapore's AAA rating, and I have little doubt that they will continue to attract the interest of more cautious bond investors in the foreseeable future,' said Homin Lee, senior macro strategist at Lombard Odier in Singapore.
Singapore's 10-year yield is around 2.30%, near the lowest since March 2022. Similar tenor bonds in Thailand and Malaysia are hovering close to the lowest levels since September 2021 and December that year.
Pin Ru Tan, head of APAC rates strategy at HSBC Plc, expects yields in Singapore and Thailand to drop further by the end of the year. She sees Singapore's 10-year yields falling to 2.20% and Thai yields of a similar tenor declining to 1.60% from the current level of 1.68%.
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