Junk debt from Asia is beating bonds almost everywhere in 2026

Published Tue, Sep 15, 2026 · 04:43 PM

[JAKARTA] Asian high-yield debt has emerged as a surprising global winner in bond markets as ever-cheaper money in China burnishes issuer finances.

The junk dollar bonds have returned 4.3 per cent so far this year versus only 1.8 per cent for US peers, and beat two dozen key global debt gauges in the period, data compiled by Bloomberg show.

The Asian notes, of which Chinese borrowers account for the largest share, extended their outperformance over the last month as the gap between Chinese and US benchmark yields widened to the most on record.

The dominance of Asian junk bonds boils down to stronger fundamentals: near record-low borrowing costs in China and faster economic growth in the region that are translating into fewer defaults.

Yield premiums on the securities tightened to a record low last week, even as headwinds mount with a rate hike by the US Federal Reserve later this week looking more likely and the Middle East conflict pushing oil prices higher.

Elsewhere, concerns about rekindled inflation have dragged a growing pool of global debt into the red.

“The vast majority of high-yield issuers in Asia are also able to access local currency funding that is comparable or cheaper than offshore US dollar funding,” said Mel Siew, head of Asia public credit at Muzinich & Co.

“The current level of credit spreads does require investors to remain vigilant.”

A recent Moody’s Ratings report showed that at least for the portfolio of companies it assesses, there were 43 corporate issuer defaults in the US this year through July, 20 in Europe, the Middle East and Africa, and only one in the Asia-Pacific.

But the recent run-up in US bond yields and a Fed rate hike would increase pressure on Asian central banks outside China to lift rates to stem outflows, making it more expensive for firms to borrow.

In some markets like Australia, where policy rates are higher than in the US, the recent collapse of Australian builder Bathla Group is a potential harbinger of wider stress.

Still, Chinese junk dollar bonds have made 0.2 per cent so far in September, while Asian high-yield notes more broadly lost 0.4 per cent in the period.

That is still better than most other bond classes where losses have been bigger, though floating-rate leveraged loans are outperforming in September, Bloomberg-compiled data show.

“Investors may begin migrating up the credit curve, favouring higher-rated credits where yields remain attractive without requiring them to assume the same level of default risk,” said Melvin Chan, director of fixed income for Asia at UOB Asset Management.

Driving the outperformance is also a rebound in notes of stressed borrowers including Hong Kong developer New World Development and a lower volume of issuance than in other regions.

But there are signs of a rebound in issuance, albeit from a low base.

Asia ex-Japan junk bond sales in the US currency from non-financial firms have climbed 20 per cent to about US$12 billion in this year from the year-earlier period. That compares with more than US$220 billion of high-yield offerings in the US.

“You could start seeing the high-yield market really picking up over the next year” in Asia for issuance, if fundamentals remain intact, said Rishi Jalan, Citigroup’s head of Asia-Pacific debt capital markets.

“Tech and data centres could be a good area where you see high-yield volume.”

The lower Asian junk issuance is partly a reflection of the meltdown in China’s housing sector and the retreat of Chinese property developers that once dominated the market, selling more than US$50 billion of high-yield notes at their peak in 2019.

But today, even lower-rated Chinese companies can sell shorter-dated bonds at about 1.7 per cent, a local currency credit gauge shows, as the world’s second-biggest economy battles deflationary pressures.

Japanese issuers are also becoming an increasing part of the broader speculative-grade bond market. SoftBank is planning a US$10 billion to US$20 billion debt offering, people familiar with the matter said in August.

For some investors, Asian junk dollar notes have been overlooked and there is still room to find bargains.

“We continue to project high single-digit returns for this year and the coming years given ample opportunity,” said Dhiraj Bajaj, chief investment officer of Asia fixed income and equities at Lombard Odier Investment Managers.

“Most Asia high-yield investors are perhaps too cautious and are sticking to long-established credits, which leads to a lot of value still available.” BLOOMBERG