Bond markets across the world had a tough start into 2022, with rising inflation, monetary policy tightening and the Russian invasion of Ukraine. Bond yields rose sharply during this period, but Nikko Asset Management in an outlook said that the volatility in bond markets is waning as the market has now priced in monetary policy tightening, with an opportunity in Asia bonds.

The investment management firm sees Asian bonds recovering in the coming months and said that Asian economies have mostly recovered to pre-pandemic levels as manufacturing and domestic activity are on a healthy recovery.

Nikko AM in its report says that inflation in Asia is not as bad as in the US and other western economies and central banks are under less pressure to hike interest rates. The asset manager is of the opinion that domestic subsidies by Asian governments have helped better manage the economy.

“Asia offers real yields at relatively decent levels since inflation in the region is not as high,” writes Edward Ng, Senior Portfolio Manager at Nikko AM. “Indonesia, for example, offers more than 4% in real yield and countries like China, the Philippines, India and Malaysia offer more than 1% in real yield. In contrast, countries like the US, Germany, Poland and Chile offer negative real yields.”

The report goes on to talk about the strengths of Asian economies and how Asia bonds have performed over the long term, with the suggestion that the fixed income asset could help investors diversify their portfolios.

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