Macro Update

US macro conditions in April reflected a cautious and uneven backdrop, with UST yields drifting higher and the curve modestly bear flattening amid elevated energy prices. The 2Y and 10Y UST yields rose to 3.87% and 4.37%, respectively, narrowing the 2s10s spread to around 50bps. The Fed held rates steady at 3.50%–3.75% at the April FOMC, but an unusually high number of dissents (three hawkish, one dovish) underscored growing uncertainty over the policy path, with markets pricing a higher-for-longer stance.

Inflation dynamics were mixed. Headline CPI spiked due to a sharp surge in gasoline prices, while core inflation remained relatively contained despite some firmness in shelter costs. Meanwhile, labor market signals were conflicting, with strong headline payroll gains offset by downward revisions to prior months and a decline in participation, reinforcing the picture of a resilient but increasingly uneven economy.

Credit Strategy and Portfolio Changes

Asia credit markets in April reversed the spread-widening and negative returns observed in March, with both Investment Grade (IG) and High Yield (HY) segments staging a strong recovery. UST yields were relatively flat compared to end-March, while credit spreads tightened broadly across the market. Spreads tightened by 11bps in IG and 73bps in HY, as improved risk sentiment – supported by a two-week U.S.-Iran ceasefire early in the month – allowed markets to retrace most of March’s widening.

Within Asia IG, BBB-rated bonds outperformed, tightening by 13bps. The move was led by higher-beta sovereigns such as Indonesia and the Philippines, alongside quasi-sovereign and corporate issuers. In contrast, AA- and A-rated bonds saw more modest compression, as investors rotated into higher-beta BBB credits following the March selloff.

On the primary side, year-to-date issuance stands at $101bn (-8% YoY), with weaker supply from AXJ ($48bn, -22% YoY) and Australia ($16bn, -26% YoY) partly offset by strong Japan issuance ($37bn, +43% YoY). Net supply remains negative year-to-date, which should continue to provide supportive technicals for Asia USD credit.

Looking ahead, we expect markets to remain anchored to the “higher-for-longer” narrative, reflecting persistent uncertainty around inflation dynamics and lingering stagflation risks. With rates volatility likely to increase, we maintain a preference for a conservative strategy and a modest underweight duration stance.

In Asia HY, April’s rally was broad-based, led by B-rated bonds in a typical risk-on rebound. At the market level, Macau and frontier sovereigns – particularly Sri Lanka and Pakistan – saw meaningful gains, contributing to overall spread compression. Total returns in these markets have largely recovered to pre-conflict levels.

^{Source: Value Partners, Bloomberg, as at 30 April 2026.}

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