Global markets were thrown into turmoil, with multiple rounds of US tariff announcements and retaliation measures from some of the impacted countries.

News headlines lately have been filled with a sense of heightened risks and a growing need for diversification. We interviewed PineBridge Asia's Fixed Income team to understand how Asia investment grade (IG) bonds can help mitigate portfolio volatility in a global portfolio, how the asset class compares against its US, European, and emerging market (EM) peers, and why they offer opportunities for optimising investor portfolios.

How are the US tariff and subsequent retaliations from other nations impacting Asia USD bond issuers?

PineBridge: We expect US trade policies to remain the primary market driver in the near term, with potential retaliatory tariffs risking disruptive trade wars and global growth impact. If fully implemented, these tariffs could significantly hinder global growth and increase the likelihood of a US recession. The severity of the impact varies by country, with Vietnam, Thailand, and China relatively more affected. However, we do note that policy uncertainty is very high and the situation remains very fluid. 

As for the impact on Asia USD bond issuers, while Asian economies could be facing some of the highest tariff rates, we have been holding the view that Asia IG credits will stay resilient amid the trade conflict and this is also reflected by the orderly spread movement since April 2. We think the resilience is underpinned by several factors including: 

‍First, Asia USD bond issuers have limited direct exposure to these tariffs. We estimate that only 3.0% of issuers in the JP Morgan Asia Credit Index (JACI) derive more than 10% of their revenue from the US and are thus directly exposed to these tariffs¹. Even among this group affected, many benefit from mitigating factors in place such as US-based production facilities or unique technological advantages that are difficult to substitute.

Second, in terms of fundamentals, Asia credit issuers are expected to remain broadly resilient. Despite slower global and regional growth, Asia credit fundamentals have remained steady. Strong balance sheets, access to low-cost local funding, and government support for entities critical to policy objectives contribute to this resilience.

Notably, Asia IG corporate net leverage is at a healthy level of 1.1x, compared to ratios exceeding 2.8x in developed market IG². Specifically in China, approximately 67% of the issuers in the JACI IG index are estimated to have direct or indirect ownership linkage to sovereign, benefiting from government support, particularly for entities critical to policy objectives during economic downturns.³ 

For the earnings season currently underway, we expect results to come in within expectations and, more importantly, for credit metrics and balance sheet strength to remain stable. APAC IG’s fundamentals have historically been stronger than those of its EM peers. In addition, APAC IG’s average credit rating is about A3/A-, exceeding that of the rest of EM.

Lastly, in terms of technicals, while Asia Pacific USD gross supply increased in the first quarter – up 35% over the same period last year⁴ – we are likely to see a third year of net negative supply for bond issuances. This bodes well for the Asia IG market, as continued demand for these quality bonds will bolster prices.

What are the key mid-to-long-term risks factored into the current positioning?

PineBridge: The fluctuating US policy and resulting uncertainty weigh on business sentiment and corporate planning. This uncertainty will negatively affect consumer confidence, leading to a "wait-and-see" approach globally. Tit-for-tat actions between the US and other countries could slow down global growth.

Against this backdrop, we think Asian IG issuers are well positioned to absorb the direct impact of trade tariffs. We also take comfort in the fiscal flexibility of several Asian economies, including China, Singapore, and South Korea.

Despite this, we are adopting a relatively defensive approach due to potential sentiment swings. While we have confidence in the fundamentals of most Asian IG issuers, we anticipate credit spreads could be affected somewhat by an economic slowdown.

What role can Asia IG bonds play in a globally diversified bond portfolio? 

PineBridge: From a risk and return perspective, Asia IG bonds have a compelling profile for investors. Over the past 10 years, Asia IG bonds have delivered higher total returns of 3.0%. compared to US IG’s 2.3% and Global Aggregate Credit IG’s 1.7%, as of 31 March 2025. 

In addition, given Asia IG’s low correlation to global bonds, an allocation to the asset class in a fixed income portfolio can enhance diversification and reduce overall portfolio volatility.

About PineBridge Asia Pacific Investment Grade Bond Fund

The PineBridge Asia Pacific Investment Grade Bond Fund offers exposure to USD-denominated bonds in the Asia Pacific region, using an active approach to identifying Asia IG opportunities while carefully managing risk. 

This Fund focuses solely on IG bonds and is a pure play in APAC IG. Unlike most of the Fund’s IG bond fund peers that achieve an average investment grade quality, the PineBridge strategy believes in the value of the purity of IG . The investment process combines bottom-up security analysis with a top-down focus on macro and industry factors, seeking alpha opportunities through both active credit selection and duration management.

The Fund has demonstrated strong and consistent performance over the long term. Over the past nine years (2016-2024), it has outperformed its benchmark seven times. Against peers, it is ranked in the first quartile in the five-year and since-inception periods through March 2025 within the Asia Bond Category, according to Morningstar.⁵

This Fund may be suitable for investors seeking exposure to Asia or APAC IG bonds with a conservative and balanced risk-return approach. However, investors should also consider diversifying their portfolios across other geographies and asset classes.

Endowus has four funds from PineBridge Investments (as of 30 April 2025), including the PineBridge Asia Pacific Investment Grade Bond Fund. Get started building your own portfolio on the Endowus Fund Smart platform.

The views expressed in this article are attributed to PineBridge in its entirety. 

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[1] Source: PineBridge Investments, as of 31 March 2025. JP Morgan JACI Composite Total Return Index was used as a proxy for the research. For illustrative purposes only. Any opinions, projections, forecasts, or forward-looking statements presented are valid only as of the date indicated and are subject to change. Diversification does not necessarily ensure against market loss. Past performance, or any prediction, projection, or forecast, is not indicative of future performance.
[2] Source: JP Morgan, Bloomberg Finance L.P., S&P Capital IQ, and PineBridge Investments as of 31 December 2024.
[3] Source: JP Morgan, PineBridge Investments, as of 31 March 2025. For illustrative purposes only. Any views represent the opinion of the Investment Manager, are valid as of the date indicated, and are subject to change.
[4] Source: Bank of America, as of 31 March 2025.
[5] Source: Morningstar, PineBridge Investments. As of 31 March 2025. Reflects the net performance of the PineBridge Asia Pacific Investment Grade Bond Fund Class “X” (the “Fund”) in USD, which is a sub-fund of PineBridge Global Funds, an Irish domiciled UCITS umbrella fund, authorised and regulated by the Central Bank of Ireland. Net performance is calculated net of fees on NAV to NAV in USD with dividends reinvested. Returns over one year are annualized. The inception date of the Fund is 21 July 2015 and the launch date of Class “X” of the Fund, 21 July 2015. Performance for periods of less than a year is not annualized. Past performance is not indicative of future results. Morningstar category: ASIA BOND.