A mix of lower interest rates, lower defaults and more issuances bode well for corporates and governments looking to tap Asia’s bond market in 2025.
There are hopes for Asia’s bond market next year to outperform 2024 which is expected to hit $160-165 billion in 2024 for Asia, ex-Japan. As issuers look to go to market, there is also plenty of willingness from banks to lend in the region, which is helping to keep spreads low.
Speaking at an early December media briefing in Hong Kong, Jessica Chen, head of China DCM, origination Asia ex-Japan, JP Morgan: “Overall spreads are tight and look increasingly attractive to issuers. In 2024, China is expected to overtake Korea in terms of issuance (from 2023) as the region’s largest market.”
Chen added: “We are expecting $170 billion of supply in 2025 in Asia, ex Japan with supply to pick up over 2024. We expect this trend to continue next year as some firms refinance.”
Another reason to be hopeful is that bond defaults are declining in the region and that the US Fed is set to cut interest rates further in the new year.
Soo Chong Lim, managing director, head of Asia credit research, JP Morgan, said: “Bond default rates declined to around 4.4% in 2024 compared with 17% in 2023, and we expect them to decline further to 3% in 2025.”
However, expectations are mixed when it comes to property bonds with many headwinds ahead, despite falling interest rates in the US.
Lim added: “We expect three [US Fed] rate cuts in 2025 and China’s GDP to grow 3.9% next year. There will still be market headwinds, especially for the Chinese property sector which is recovering slowly after several years of turbulence. In Hong Kong, for example, the office occupancy rate will continue to struggle because of the supply coming onto the market.”
In 2024, India – arguably Asia’s best performing economy -- had a very successful year for bond issuances, a trend that is set to continue in the new year.
Puja Shah, head of Southeast Asia (SEA), DCM and sustainable finance Asia ex-Japan, JP Morgan, said: “The high yield bond market in India was a particular bright spot in 2024 with some large names coming onto the market. It is at $4.7 billion YTD, and we expect that momentum to continue into 2025 with around $5 billion in supply.”
The issuing of sustainable bonds in the region is also set to continue to grow next year. Singapore-based Shah added: “We expect stable demand, at between 25-30% of issuances, for sustainable (green and social) bonds next year in the region, compared with 25% in 2024.”
