Marco Update

US macro conditions in February delivered mixed economic signals, with the January FOMC minutes maintaining a hawkish tilt as some officials kept the possibility of a rate hike open if inflation persists. Meanwhile, stronger‑than‑expected data, including a jump in ISM manufacturing data and 130k payroll gains, initially pushed the US Treasury (UST) higher. Nevertheless, broader data pointed to cooling momentum as job openings fell to their lowest since 2020 and 4Q GDP undershot forecasts at 1.4% YoY, contributing to a 30bps tightening in UST yield for the month amid rising risk aversion, economic slowdown concerns, and heightened geopolitical tensions.

Entering early March, the intensifying US-Iran war renewed worries about inflation – every 10% increase in oil price could lift US headline inflation by around 0.2% – which pushed UST yields higher across the curve, with the 10‑year yield rebounding to around 4.4%, and the 2/10 year curve flattening. The subsequent evolution of the Middle East situation and its impact on oil prices and energy supply will be key drivers for Asian credit markets.

Credit Strategy and Portfolio Changes

Asia’s credit markets softened modestly in February, as renewed geopolitical risks, legal uncertainty surrounding US tariffs, and softer‑than‑expected inflation data emerged. Despite the supportive rates backdrop in February, Asia Investment Grade (IG) and High Yield (HY) spreads widened by 8bps and 17bps, respectively, with high‑beta and long‑duration names underperforming.

Subsequently, volatility intensified in March as both UST yield and credit spreads widened further. Fed pricing shifted to reflect the expectation of a potential rate hike due to oil-driven inflation concerns. During the month of February, we further took profit on longer-tenor bonds and reduced portfolio duration to 4.6 years by end-February. Within IG, Indonesian credits lagged amid broader sovereign weakness, while China tech names widened on tax concerns. Primary market volumes slowed due to holidays despite strong absorption of high‑quality Korean and Japanese financial deals. We remain constructive on systemically important financials and defensive corporates.

In HY, performance was mixed as frontier sovereigns and Indian HY names underperformed, while China property names outperformed on supportive policy measures and successful refinancing from select developers. We continue to prioritize issuers with demonstrated funding access while avoiding segments vulnerable to geopolitical or policy shocks. Overall, we maintain a defensive stance, identifying selective opportunities in HY, particularly among issuers with solid market positions and diversified funding channels.

^{Source: Value Partners, Bloomberg, as at 28 February 2026.
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