The high-yield bond market in Asia is experiencing a resurgence, with investors seeing healthy returns and higher yields. The KraneShares Asia Pacific High Income Bond ETF (Ticker: KHYB) is currently the highest-yielding US-listed ETF in Bloomberg’s high-yield category, with a 12-month trailing yield of 14.95%. The credit cycle recovery in Asia, particularly in countries like Indonesia and India, has been a key factor in driving the strategy’s recent outperformance. Default rates for Asia ex China remain at healthy levels, making Asia High Yield an attractive investment option.
Asia High Yield currently offers wider spreads compared to US and European high yield bonds, providing investors with increased opportunities for credit selection. The market is characterized by strong technicals, with subdued net new supply and robust demand from regional institutional investors. Strong demand from local investors and private banks, despite weak fund flows, continues to support the market, making it an appealing option for investors seeking higher yields.
KHYB has outperformed most US and global fixed income benchmarks so far this year, with the recovery in the Asia High Yield market playing a significant role in this outperformance. The market offers higher spreads for similar ratings compared to US high yield corporates, making it an attractive investment option. Strong macroeconomic and corporate credit fundamentals in Asia ex-China, particularly in countries like Indonesia and India, have led to increased demand for credit and strong corporate earnings.
Investors are optimistic about India’s bond market, with strong risk-reward opportunities in the high yield US dollar bond market. The renewable energy sector in India is particularly attractive, given the structural demand growth for renewable energy and favorable government policies. Corporate fundamentals remain healthy overall, with minimal defaults expected in India this year. Technicals in the market also remain well-supported, with subdued new supply and strong domestic deposit growth.
One key risk that investors are monitoring is the US interest rate cycle, which could impact investment returns in the coming years. However, KHYB is relatively well-insulated from this risk due to its low duration. China’s real estate market continues to be a focus, with uncertainties surrounding potential defaults from developers and weak property sales. The recent Politburo statement pledging to reduce housing stockpiles is seen as a positive signal, but the market is still monitoring developments in the sector.
Looking ahead, the Fund is keeping an eye on opportunities in Macau’s gaming sector and commodity-related credits as a hedge to stronger-than-expected economic growth. The effectiveness of China’s policy stimulus plan will also influence potential capital allocation decisions. Overall, the Asia High Yield market presents attractive opportunities for investors seeking higher yields and strong credit fundamentals in the region.
