Executive Summary

• US macro & Fed view: our US strategy team forecasts one more 25 bp rate cut in 2025 on the back of a soft labor market but sticky inflation; in 2026, our base case sees the Fed cutting 125 bp to 3.0%, driven by persistent low/negative job adds, which dents the US consumer, contributes to disinflation, and allows the Fed to cut aggressively.
• US rates forecast: for YE25, we forecast 10Y UST yields at 4.25%, which we see as an attractive entry point for adding duration; we see 10Y yields declining to 3.5% by YE26 as a base case; we expect the Fed to end QT at YE25 and resume UST buying, which would help push long-end yields below recent lows; we forecast a bull steepener to bring 2s10s to 100 bp.
• Asia credit YTD performance recap: despite US tariff uncertainties, US rates volatility, and bouts of political instability, the Asia $ credit market has been remarkably resilient, with Asia IG compressing towards levels not seen since the late-1990s and Asia HY well through 300 bp; we attribute the YTD strength of the Asia $ credit market to a benign macro backdrop, sound credit fundamentals, and net negative new supply, which we expect to persist in the rest of 2025.
• 4Q25 outlook: we expect Asia IG spreads to marginally widen to 70 bp, and Asia HY to also decompress but remain tighter than US HY at 315 bp; our forecasts imply total/excess returns of 5.7%/1.1% for Asia IG, and a total return of 9.5% for Asia HY for full year 2025.