Government bonds outshine in 2015

Taking stock of 2015, 10Y government bonds generally fared well despite the specter of Fed hikes. In the developed world, 10Y yields (US, Germany, UK, AU) are modestly higher compared to the end of 2014. Meanwhile, 10Y SGS yields faced slightly greater upward pressure on the back of unfavorable FX dynamics while 10Y HKgov bonds outperformed. The overriding driver behind why yield increases have been so low despite the Fed nearing liftoff can be attributed to globally low inflation. China's economic woes and the persistent drop in commodity prices have nudged down inflation expectations. 

In Asia, the performance is mixed. Government bonds in northeast Asia performed particularly well. Slower economic growth, monetary easing and relatively low external funding concerns allowed these economies to enjoy lower bond yields. For China and Taiwan, there remains a further easing bias. Southeast Asia government bonds fared less well. Indonesia (in particular) and Malaysia saw yield increases over the past year. These two economies have substantial commodities' exposure and sentiment on IDR and MYR assets have been weak. Accompanying the selloff in government bonds, sovereign credit default swaps and their respective currencies also came under pressure.