Asian Fixed Income: Navigating a more hawkish central bank environment

Amid a complex geopolitical backdrop, Asian fixed income posted resilient performance in the first half of 2026. As inflation pressures have remained elevated, global central banks have pivoted to a more hawkish stance, including some in Asia. In this Mid-Year Outlook, the Asian Fixed Income team explains this important change in monetary policy expectations, and why the asset class is well positioned to capitalise on it.

Summary:

• Asian central banks have become incrementally more hawkish on the back of sustained inflationary pressures, with some hiking rates.
• With this change in interest rate dynamics, the need for selectivity has further increased. Asia Fixed Income continues to offer a range of opportunities that are value-added for investors’ portfolios.
• Asian high-yield (HY) and investment grade (IG) hard currency bonds are attractive offering higher relative yields and shorter duration than global peers.
• Of the two, we prefer Asia HY in the second half of 2026, as the universe continues to provide the highest yield (a forward-looking metric) across all major global fixed income asset classes, offering a notable spread pick-up, while maintaining stable-to-improving credit metrics.
• In Asian IG, the asset class is expected to remain supported by favourable macro dynamics across Asia backed by healthy growth and accommodative policy.
• In local markets, Japan and India provide attractive investment opportunities.