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After years of growth, Asia’s local currency bond markets are far deeper than they once were. The value of outstanding bonds in emerging east Asia increased from USD $866 billion in 2000 to $23.2 trillion by the end of 2022.[1] More index providers now include the bonds in their global indices.

I expect Singapore, Japan, and Malaysia’s bonds to shine in 2026.

Singapore has been one of the few countries to hold on to its triple-A rating. Its credit profile is supported by resilient economic fundamentals, strong fiscal discipline, substantial foreign exchange reserves, and a sound financial system.

Cooling inflation is a further tailwind for local currency paper. More and more Asians are looking to invest closer to home, and the country’s evolution into Asia’s global private-wealth hub has lifted demand for local assets. The Singapore dollar has been the best-performing Asian currency against the greenback in the past four years.[2]

It’s a different, but similarly intriguing, story in Japan. For years, zero to negative interest rates, coupled with long-term detachment from Asian indices, had turned much of Japan’s bond market into a dull corner of the global fixed income world. Now the macroeconomic outlook is finally brightening, with mild consumer price gains kindling hopes for reflation. A gradual exit from ultra-loose monetary policy should support the yen – especially with the Fed expected to continue its easing cycle into 2026 – making yen-denominated bonds attractive for global investors.

Malaysia will be a rising star in the region’s local currency bond markets in 2026. Strong domestic investment, coupled with a stable political and economic environment, is expected to attract more foreign capital. Given the country’s mild inflation, there’s scope for the central bank to cut policy rates if external demand deteriorates.

Challenges remain, including liquidity constraints and the lack of a globalised issuer mix. But growing economies, increasing demand from investors seeking diversification, and continued market reforms could usher in a golden era for Asia fixed income in 2026 and beyond.

[1] Emerging Asia’s $23.2 Trillion Answer to Economic Shocks: Local Currency Bond Markets | Asian Development Blog

[2] Bloomberg, as at October 27, 2025 

Belinda Liao

Belinda Liao

Portfolio Manager