Asian fixed income remains steady amid yield turbulence

THE biggest story in the bond markets right now is a return of the "taper tantrum" we saw in years gone by. Although the Federal Reserve (Fed) has not indicated any monetary tightening, bond yields in many developed markets have spiked on greater inflation expectations resulting from the new US$1.9 trillion United States stimulus package.

The 10-year US Treasury yield hit 1.67 per cent on March 26, 2021 - its strongest level in over a year and almost 75 basis points (bps) higher than end-2020 levels. Ten-year United Kingdom gilts surged from 0.20 to 0.76 per cent over the same period, while 10-year German bonds moved from -0.58 to -0.35 per cent.

This development has impacted Asian equities, with many stock markets in the region seeing outflows and declines in February 2021. Yet, against this backdrop, Asian bonds have remained resilient. Yields on the Markit iBoxx ABF Pan-Asia Index - which tracks the performance of local currency government and quasi-government bonds in eight Asian markets - increased by 22 bps to 2.88 per cent from Jan 31 to Feb 28, 2021.