×

Pinebridge: Look to Asia fixed income for good bond yields

A carnival for Indonesia's 71th Independence Day, in Aceh, Indonesia on August 18, 2016.
Junaidi Hanafiah | Anadolu Agency | Getty Images
A carnival for Indonesia's 71th Independence Day, in Aceh, Indonesia on August 18, 2016.

With much of the global bond market posting negative yields, Asian fixed income still offers solid returns, said Omar Slim, vice president of fixed income at Pinebridge Investments.

Pinebridge, which has around $81 billion in client assets under management, has been looking at investment grade Asian debt, predominately bonds sold by companies, but also including some sovereign and quasi-sovereign offerings, Slim said in an interview last week.

"The fundamentals are stable. We've had valuations that are still a bit more attractive than in other markets, particularly for instance, some of the other developed markets," he said. "This hunt-for-yield environment is very powerful, and it's a hunt-for-yield in an environment where you're seeing less issuance in Asia, not more, so essentially there's more money chasing less supply."

Slim also said he likes Indonesian sovereign bonds, citing the government's efforts on reforms, including its recent tax amnesty program to encourage repatriating funds held overseas.

The yield differential in Asia offerings can be large. Indonesia's benchmark 10-year rupiah-denominated bond was yielding around 7.1 percent on Tuesday.

That compared with the U.S. 10-year Treasury yielding around 1.58 percent, the Japan 10-year bond around a negative 0.7 percent and the German 10-year bond at around negative .05 percent.

But Slim noted that the valuation of Malaysia's bonds appeared stretched, with reforms lacking the momentum seen in Indonesia. Malaysia's 10-year sovereign bond was yielding around 3.57 percent on Tuesday.

While the Federal Reserve may have given its loudest hints yet of impending interest rate hikes at its conclave in Jackson Hole, Wyoming, last week, Slim, who commented before the gathering, didn't expect fixed income markets to become rattled.

He said the causes of low interest rates globally were structural, rather than cyclical.

"When I look at the macro environment in terms of low economic growth, very supportive central banks, high savings rates, negative demographics, abundant liquidity -- all of these factors are long-lasting factors and very powerful factors, which are supportive of fixed income markets in general," he said.

"It is one of the main reasons why we have been seeing this bull bond market for the past few years," he said.

Others were less positive on Asia fixed income in the wake of Jackson Hole.

"The yield-grab that took place over the past few months was predicated on the Fed not being able to normalize policy over the coming months," DBS said in a note Tuesday. "As the market refocuses on the Fed, the rally in Asia government bonds is likely to stall."


Follow CNBC International on Twitter and Facebook.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1