Steady returns tipped for Asian, Singdollar bonds this year

Interest rates in the United States are likely to climb gradually this year while global economies record moderate growth, said Mr Ooi Boon Peng, chief investment officer of fixed income at Eastspring Investments. He told The Straits Times yesterday that these factors could spell "steady returns" for Asian and Singdollar bonds.

"Asian credit (spreads) now... are generally quite attractive. In such a situation where you get stability in oil prices going forward further, I think the compression of the credit spreads and the gradual tightening of the Federal Reserve offer that sort of value (for Asian bonds)," he said.

But the returns will be less than before, with the US Federal Reserve still set to tighten interest rates. "It's not a bull market, and we cannot expect to see that kind of upsized gains that we've seen in the past five or 10 years."

Mr Ooi noted that bond yields in Asia have generally dropped over the past five years. "It's happening all over the world due to the lack of aggregate demand and inflation."

Still, he believes that the global economy will "manage through" with a moderate growth of 2.8 per cent, given that the US is growing as expected while China is forecast to expand by 6.5 or 7 per cent, although deflationary risks remain.

Mr Ooi, who was speaking at an investment seminar organised by Eastspring, the asset management business of British insurer Prudential, noted that Asian bonds will offer investors the "power of compounding".

This is as both nominal and real growth rates in the region remain high compared with that of developed markets such as Japan and Europe.

He added: "Growth is certainly slower than before, but there are also good leaders who are reform- minded, like in India, Indonesia and China. Compared to Latin America, where there is a lot of volatility, Asia is a good return-to-risk market."

Meanwhile, Singdollar bonds, which have seen yields climb to about 3.5 per cent, could also remain attractive, noted Mr Ooi.

"The Monetary Authority of Singapore (MAS) last year increased the weakness of the Singdollar by saying it will not appreciate that fast. Then it depreciated and the outflows pushed up interest rates," he said.

"I don't think the MAS will pursue a very strong policy, but they will probably keep it steady. They don't like to surprise or shock people."

A version of this article appeared in the print edition of The Straits Times on March 15, 2016, with the headline 'Steady returns tipped for Asian, Singdollar bonds this year'. Print Edition | Subscribe