Asian high-yield dollar bonds have significantly outperformed their global counterparts this year, delivering more than double the return. JPMorgan Asset Management attributes this to a superior economic outlook in Asia and higher yields offered by these bonds. PineBridge Investments also maintains a positive outlook, citing the likelihood of fewer potential defaults in the region.
UBS Asset Management, through its head of Asia fixed income portfolio management Raymond Gui, indicates that Asian junk bonds are poised for another rally in 2026, extending their outperformance over US peers. This is primarily due to lower leverage among Asian companies, which keeps default risks in check. Gui's fund, focusing on high-yield Asia notes, has beaten 99% of its peers over the past 12 months, and he expects default rates for the region's junk bonds to remain below 1% by market value in 2026.
The market has already seen promising results in 2026, with a key index of Asian high-yield debt up 1.8% after returning 9.5% in 2025. Since the end of 2023, Asian junk bonds have outperformed US and euro-denominated junk bonds by 10 and 13 percentage points, respectively. Moody's Ratings projects a global corporate default rate of 2.2% by December 2026, down from 4.1% at the end of 2025, with defaults in Asia-Pacific falling to just three in 2025 from seven in 2024. Asian junk bonds also offer better valuations, with Bloomberg indexes showing an 80-basis-point premium over US and European counterparts.
While high-yield spreads globally are at historically tight levels, prompting caution from investors like Julio Callegari of JPMorgan Asset Management, opportunities remain. Callegari prefers Macau gaming bonds and Indian renewable debt. Gui sees specific opportunities for excess returns in Greater China, where some corporate notes are priced below fundamentals, despite ongoing distress in the property sector, as sentiment improves.
