Analysis-Asia’s bond markets shake off war angst with record local issuance

By Scott Murdoch and Yantoultra Ngui

SYDNEY/SINGAPORE, April 30 (Reuters) – The Middle East war has not slowed Asia’s local currency bond markets, with Hong Kong and Australian dollar issuance hitting record highs so far in 2026 as investors and companies look to accelerate a shift away from U.S. dollar debt deals.

Hong Kong ‌dollar bond proceeds this year climbed nearly 17% to $14.8 billion, according to LSEG data, the strongest ever start to the year. Australian dollar bonds year to ‌date reached A$143 billion, up almost 30%, and also a record, according to Dealogic.

In comparison, Singapore dollar bond issuance rose 3.7% to $5.56 billion year to date, the most in 12 years.

“The renewed interest in local currencies such as ​the Singapore dollar, CNH (offshore yuan) and Australian dollar is becoming more pronounced because of the interest now in diversifying slightly away from pure dollar dependency,” said Clifford Lee, global head of investment banking at DBS.

“Another factor is the expectation that local currencies will stay strong and remain firm.”

Record issuance in some of Asia’s local currency bond markets despite geopolitical strain reflects sustained demand for regional assets and a gradual shift by investors away from U.S. dollars.

Dollar bonds still dominate the Asian debt market, with issuance year-to-date up 2.5% to $132.6 billion, according to Dealogic.

In Hong Kong, where ‌the local currency is pegged to the dollar but borrowing costs ⁠are currently much lower, the strong performance was driven in part by landmark deals.

Three deals in the past week raised nearly HK$42 billion ($5.4 billion). Airport Authority Hong Kong raised HK$19 billion on Tuesday and last week MTR Corp, the operator of Hong Kong’s popular subway system and ⁠land owner, separately raised HK$18.9 billion.

Its deal drew more than HK$60 billion in orders. Cathay Pacific raised HK$2.08 billion, its first Hong Kong dollar public bond, a striking show of confidence in an airline navigating surging fuel costs.

Xixi Sun, Citigroup’s head of Greater China debt syndicate, said the Hong Kong dollar market’s surge was pushed by strong demand from bank treasury investors, a scarcity of high-quality assets ​and ​lack of bond and loan issuance for banks to deploy their capital.

The shift also reflects a broader structural ​change, bankers said. Non-traditional Singapore dollar investors from Hong Kong and ‌London are entering the market, while Hong Kong insurance companies have begun buying Singapore dollar bonds, a notable departure from historical patterns, DBS’ Lee added.

BEYOND OPPORTUNISM

Asia-Pacific local currency volumes topped $1.37 trillion year-to-date, on pace for another record year after 2025’s all-time high of $4.76 trillion, LSEG data showed.

Jini Lee, Ashurst’s global head of finance, funds and restructuring and head of region for Asia, said the trend goes beyond opportunism.

“In 2025, Asian bonds actually outperformed a lot of the developed bond markets,” she said.

“People are just saying it’s all about diversification,” Lee said. “So diversification in terms of not just geographies, in terms of where people are putting their money, but also, I think, currency.”

Markets briefly paused after Middle East hostilities escalated in early March, but ‌activity rebounded quickly.

United Overseas Bank’s head of group investment banking Samuel Tan said issuance picked up in ​primary activity in Southeast Asian local currency bond markets after a U.S.-Iran ceasefire on April 8.

Tan, however, said ​he expects “issuance windows in the near term to likely open and close at short ​notice until there is clearer and more durable resolution to the Middle East conflict.”

DBS’s Lee took a more optimistic view, saying the fallout from ‌the Middle East conflict on markets had been less severe than he ​anticipated.

“The market is functioning. It is still ​open and it is still well received. Especially for investment-grade names, and even for non-investment-grade but well-known repeat names, they can come to the market,” Lee added.

Investors are nonetheless selective. Fullerton Fund Management’s client portfolio manager and managing director, Kylie Soh, said her firm was “selectively scaling into local currency bond markets where risk-reward has improved”.

She said ​it was focusing on Australian dollar credits for carry, Singapore dollar ‌credits for resilient technicals, and CNH for renminbi stability.

“Strongest support remains for high quality corporate issuers such as large investment grade names, sector leaders and ​entities with clear strategic or policy importance, while investors are more discerning towards weaker balance sheets and smaller, high beta issuers,” she added.

($1 = 7.8346 Hong Kong ​dollars)

(Reporting by Scott Murdoch in Sydney and Yantoultra Ngui in Singapore; Editing by Sam Holmes)