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Markets are currently facing multiple uncertainties, including the return of inflation driven by the tariff wars, currency fluctuations, stock market volatility, and recession risks. Asian economies, which are typically trade surplus economies relative to the United States, have seen investors shift their strategies to adapt to these challenges and safeguard their assets.
Nelson Huang, head of FICC product and research, APAC, FTSE Russell
US treasuries and corporate bonds regain appeal amid volatility
Opportunities lie in asset classes that show more resilience in the current complex situation, such as US treasury bills, US inflation-linked bonds, and US floating rate notes.
Sharing his insights into current market dynamics, Nelson Huang, head of FICC product and research, APAC, at FTSE Russell, notes: “Since April 2025, tariffs have created significant market uncertainty. Both the stock and bond markets have become highly volatile. In the US, we’ve seen a substantial shift of capital from equities to safer assets like short-term US dollar government bonds or treasury bills. These securities are less sensitive to interest rate changes and offer greater flexibility.”
In more developed ETF markets, demand is growing for alternative and customized fixed income ETFs as the traditional market-weighted strategies are near saturation. Sophisticated APAC investors are increasingly seeking tailored solutions such as US Treasury ETFs hedged in home currencies and yield-enhanced USD investment-trade ETFs.
Given the overall fund flow trend in the global ETF industry, we have seen inflow in bond ETFs and money market ETFs, with Bond USD Government Short Term ( +$20.1 bn ) being the best-selling Lipper bond ETF classification for April 2025[1].
Beyond treasuries, US corporate bonds are also drawing attention. Yields on US dollar investment-grade corporates have reached their highest levels in nearly two decades. Prior to 2008, yields hovered around 4.5% to 5%, but after the global financial crisis, they dropped to 2% to 3%. In 2025, those yields have once again exceeded 5%, according to the latest FTSE US Broad Investment-Grade Bond Index profile.
“In 2025, I believe the US dollar corporate bond market presents a compelling opportunity for investors seeking attractive yields and stable cash flows, In this context, US dollar investment-grade bonds are gaining traction, offering better yields than most local Asian currency bonds, with similar or lower default risk. However, APAC investors also need to be careful about the risk of depreciating USD against their holding currencies,” Huang adds.
Customized strategies in APAC
In general, fixed Income ETF markets across Asia-Pacific, those benchmarking market-weighted fixed income indices – such as US Treasury and USD Credit – are expected to remain dominant. However, in more developed ETF markets, demand is growing for alternative and customized fixed income ETFs. “Markets in the region have diverse investment ecologies. Japan is a very diversified ETF market, they seek higher yield in foreign currency treasury bonds, while Australia is likely to remain dominated by AUD-denominated products. Taiwan is the largest fixed income ETF market in APAC, where we see nearly a hundred of customized USD bond ETFs, with quite nuanced difference,” says Huang.
A weaker US dollar is another factor enhancing the appeal of local currency emerging market bonds, particularly government securities from India, Indonesia, and the Philippines.
“China is a different story due to capital controls like QDII ( Qualified Domestic Institutional Investor ), which limit onshore investors from accessing foreign assets. However, if those barriers are removed, I believe there will be strong interest from Chinese investors to invest into foreign currency bond ETFs,” he adds.
A weaker US dollar is another factor enhancing the appeal of local currency emerging market bonds, particularly government securities from India, Indonesia, and the Philippines. Indian government bonds under the Fully Accessible Route ( FAR ), established in 2020, allow foreign investors unrestricted access with no investment caps.
“This segment is compelling because Indian government bonds currently offer yields in the 6-7% range, which is about 100 basis points higher than comparable US dollar-denominated bonds. Similarly, Indonesia and the Philippines offer comparable yields to maturity, making them attractive options for both international fixed income investors and domestic investors,” says Huang.
In addition, APAC’s developed markets – Hong Kong, Taiwan, South Korea, and Singapore – are all facing a common demographic challenge: ageing populations. Asset owners such as pension funds, insurance companies, and retired retail investors are seeking yield and stable cash flow, while prioritizing capital preservation.
Navigating the evolution of fixed income markets in APAC
As fixed income markets continue to evolve, there has been a growing focus on local currency credit indices across Asia. In response to this trend, FTSE Russell has been actively engaging with the market, listening to evolving demands, and introducing a new index series to enhance transparency and accessibility for local currency fixed income.
Additionally, there is a strong emphasis on customization, particularly with lifecycle multi-asset strategies that blend equity and fixed income components to support retirement planning. This approach is especially relevant for developed APAC economies, addressing long-term investment needs.
More broadly, the fixed income ETF market in APAC is expanding rapidly. Investors are increasingly incorporating USD and local currency bond ETFs into their portfolios to mitigate equity market volatility and diversify risk. Beyond stability, fixed income allocations also serve as a reliable source of cash flow. As market dynamics shift, demand for innovative and tailored ETF solutions continues to grow, catering to specific investment objectives.
1] Source: Lipper Alpha Insight Friday Facts: Global ETF Industry Review, April 2025 | Lipper Alpha Insight | LSEG
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