As the U.S. election approaches, investors are increasingly turning to Asian sovereign bonds, drawn by the promise of stability in a volatile market. Asset managers like Allianz Global Investors, Franklin Templeton, and Gama Asset Management are optimistic about government debt in Asia, excluding China, citing expectations of interest rate cuts that are enhancing demand for these bonds as safe havens.
“In the coming weeks, we can expect significant noise in the market,” noted Christy Tan, an investment strategist at Franklin Templeton, which managed over $1.6 trillion in assets as of September. “When considering safe havens outside the U.S., Indonesian bonds stand out due to manageable inflation and the favorable outlook with the new president,” she added.
Traders across Asia are bracing for potential volatility as November 5 draws near. Wall Street banks are advising clients to prepare for a decline in the Chinese yuan amid rising tariff risks, while equity investors evaluate the potential impacts of renewed trade tensions on sectors such as semiconductors.
This month, South Korean policymakers made their first rate cut in over four years, while central banks in Indonesia and the Philippines have also reduced borrowing costs. Rajeev De Mello, chief investment officer at Gama Asset Management, highlighted these Southeast Asian countries as attractive options for bond investors.
Additionally, South Korea and India are benefiting from recent decisions by index provider FTSE Russell, which has added their sovereign bonds to two distinct indexes. India’s entry into the emerging market debt gauge next year could lead to an inflow of approximately $9 billion, according to Barclays Plc.
“Fundamentals are improving, technical indicators are positive, and valuations remain appealing,” said Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS Asset Management. She recommends dollar-denominated bonds from Sri Lanka and Pakistan, noting that with the Federal Reserve likely to cut rates and China introducing stimulus measures, emerging market performance may benefit in 2025.
However, investing in Asian sovereign bonds is not without risks. Further declines in U.S. Treasury yields could erode the yield advantage of Asian bonds, and any strengthening of the dollar might diminish the appeal of foreign-currency assets.
Currently, Indonesia’s 10-year bonds yield approximately 260 basis points more than similar-maturity Treasuries, down from nearly 300 basis points on September 10. Likewise, the spread between Indian and U.S. 10-year notes has narrowed to under 260 basis points from over 320 basis points earlier in September.
The growing interest in emerging Asia’s fixed income from foreign asset managers is part of a broader trend toward South Asia, which benefits from high yields and the expectation of sustained growth during a global easing cycle, according to Sue Lee, head of markets for Asia South at Citi.
As investors prepare for the election, key questions remain about its implications for global trade, particularly regarding the possibility of heightened U.S.-China tensions should Donald Trump be re-elected. India, Indonesia, and South Korea, all significant U.S. trading partners, may be better positioned to navigate these rising trade tensions. Despite Trump’s critical remarks about India’s tariffs, he has also praised Prime Minister Narendra Modi, and both major U.S. political parties view India as a crucial counterbalance to China.
“If the next administration considers trade wars with China or Mexico, India could stand to benefit due to its lack of bilateral tensions with the U.S.,” remarked Carlos Carranza, a fund manager at Allianz Global Investors in London.
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