Executive Summary

• Asia IG $ bonds tightened in December, led by the BBB bucket and the belly to long-end of the curve, while Asia HY $ bonds took another hit in December as investors de-risked towards year-end with sentiment marred by debt troubles at Vanke; in 2025, the ICE BAML Asia $ IG index (ADIG) delivered total and excess returns of 7.91%/1.70%, while the Asia $ HY index generated a total return of 9.96%.
• Our Asia $ IG and HY core picks tightened by 5 bp and 20 bp MoM, respectively, outperforming the Asia IG and HY indices; within Asia IG, T2s of Japanese lifers delivered strong spread performance; in Asia HY, seniors of Indian NBFCs, Indian corporates and Macau gaming operators stood out; our high-beta HY portfolio outperformed the ADIG, driven by robust gains in VEDLN and IIFOIN.
• We continue preferring duration to credit risk in Asia credits; we expect Asia spreads to meaningfully widen in 2026 due to rich valuations, lower all-in yields, and US macro and policy uncertainties; we recommend investors keeping high-grade defensive credits as core portfolio holdings, focusing on carry, looking for credit improving stories and special sits opportunities for excess returns; to play duration in Asia credits, we like the long-dated bonds of A-and-above rated names, high-grade fixed-for-life $ Perps that we do not expect to be redeemed in 2026, and bonds with low $-cash prices and positive convexity; we recommend investors diversifying across markets and currencies if allowed by their mandates.
• Please refer to the attached spread sheet and the body section for the adjustments to our Asia credit core and thematic portfolios.