UOB Kay Hian Wealth Management
Report Date: September 5, 2025

Fixed Income Outlook September 2025: Navigating Elevated Yields, De-Dollarization, and Tariff Risks

Executive Summary: Key Fixed Income Trends and Recommendations

The global fixed income landscape is at a critical juncture. The probability of a US Federal Reserve rate cut in September has shifted from likely to nearly certain, yet the longer-term rate outlook remains clouded by persistent inflation, evolving tariff risks, and global fiscal challenges. Investors are urged to stay selective, tactical, and diversified—focusing on high-quality investment grade credits with moderate durations and broadening currency exposures to manage risks in this new environment.

• Fed rate cut in September expected; future policy path uncertain due to sticky inflation, especially in housing, services, and energy.
• Tariffs are reshaping the risk landscape, contributing to market volatility and pushing long-term yields higher.
• US Treasury auctions have seen strong demand, but the shift to short-term T-bills increases refinancing risk.
• Long-term yields in the UK, Germany, and Japan have spiked to historical highs, reflecting synchronized global fiscal pressures.
• Investment grade corporate bonds—especially with ~5-year maturities—remain favored for their relative simplicity and strong fundamentals.
• Be ready for volatility: IG downgrades often spike during recessions; stick to high-conviction names that can weather macro stress.
• This month’s spotlight: National Australia Bank (NAB) 4.6% 18 Mar 2030 AUD bond.

Market Pulse: Macro Environment and Rate Outlook

Inflation, Consumption, and the Fed

– July Producer Price Index (PPI) delivered a shock, posting the largest monthly gain since January 2023 (+0.9% month-on-month). Core PPI rose 0.6% as services costs accelerated. – Personal Consumption Expenditures (PCE) data shows sticky inflation but resilient consumer spending. – Odds of a September Fed cut are now 95%, with Powell signaling a shift in focus toward labor market weakness. – Atlanta Fed GDPNow forecast for Q3 is 3.0% (down from 3.5%), still signaling solid momentum despite signs of a softening labor market.

Tariffs: The Crossroads of Fiscal, Economic, and Legal Forces

– Average US tariffs now hover around 20%—the highest in a century. – Tariffs are not just impacting trade but are also at the center of fiscal and legal debates, including Supreme Court involvement, which has injected fresh volatility into bond markets. – Investors are advised to be more tactical and diversified; USD bonds are no longer the default safe haven.

US Treasury Auctions and De-Dollarization Trends

– Treasury auctions are multiple times oversubscribed, with a surge in T-bill issuance (estimated net issuance of USD 400 billion YTD). – The US strategy of favoring T-bills helps lower borrowing costs but significantly raises refinancing risk. – The de-dollarization theme remains intact, as short-term borrowing is not a sustainable long-term solution.

Global Yield Landscape: Synchronized Fiscal Strains

British 30-year yields reached 5.6% (highest since 1998), Germany’s 30-year hit 3.3% (highest since 2011), and Japan’s 30-year set a record at 3.24%.
All major developed markets are grappling with sticky inflation and fiscal imbalances.
When yields rise in one major market, others often follow due to arbitrage—expect long-term yields to remain elevated.

Core Investment Recommendations

– Focus on high-quality, investment grade corporates with ~5-year maturities for balance of yield and price stability. – Shorten bond duration, diversify currency exposure, and consider hedges like gold (which recently hit record highs). – Remain vigilant for downgrades; be prepared to buy on dips high-conviction names that can sustain debt obligations through volatility.

Bond Radar: Investment Grade Bond Opportunities

Below is a comprehensive list of notable investment grade (IG) bonds across Asia, the US, Europe, and global financial institutions:

Asia Non-Financial Corporates: In-Depth Company Analysis

Abu Dhabi National Energy

– Government-owned, operates the world’s largest single-site solar power plant alongside renewable energy assets. – Current price: 102.57, YTM: 4.26%, Duration: 4.06 years, 6M Performance: 2.38%.

Singtel

– State-owned, largest telecom in Singapore, second in Australia (Optus), significant presence in India (Bharti Airtel). – Investments focus on 5G, cloud, and cybersecurity. – Price: 90.54, YTM: 4.08%, Duration: 4.46 years, 6M Performance: 3.01%.

TSMC

– Leading global semiconductor manufacturer, pioneering extreme-ultraviolet lithography (EUV). – Price: 87.26, YTM: 4.19%, Duration: 4.77 years, 6M Performance: 3.31%.

Alibaba

– China’s e-commerce giant with approximately 50% market share; a leader in cloud computing in APAC. – Price: 89.67, YTM: 4.28%, Duration: 5.03 years, 6M Performance: 3.02%.

Sands China Ltd

– Macau’s second-largest casino operator, subsidiary of Las Vegas Sands. – Price: 97.66, YTM: 4.93%, Duration: 4.23 years, 6M Performance: 3.02%.

CNPC Global & CNOOC FINANCE 2013 LTD

– CNPC: Largest oil and gas producer in China, strong global engineering presence. Price: 91.47, YTM: 3.97%, Duration: 4.48 years. – CNOOC: Leading offshore oil and gas producer, specializes in deepwater drilling. Price: 95.87, YTM: 3.98%, Duration: 3.75 years.

Meituan

– China’s leading e-commerce platform for local services, including food delivery and travel. – Price: 92.95, YTM: 4.60%, Duration: 4.63 years, 6M Performance: 1.86%. – 2Q net profit down 90% YoY due to intense competition.

JD.com

– Major e-commerce platform in China, leader in electronics and home appliances, renowned for in-house logistics. – Price: 96.62, YTM: 4.23%, Duration: 3.99 years, 6M Performance: 2.22%.

Xiaomi

– Designs smartphones, smart devices, and IoT products; recently expanded into electric vehicles. – Price: 95.92, YTM: 4.35%, Duration: 4.20 years, 6M Performance: 2.46%. – Upgraded to Baa1 by Moody’s, but spreads are tight versus BBB peers.

Singapore Airlines

– Flag carrier, Temasek-controlled, robust liquidity, benefitting from quasi-sovereign support. – Price: 105.95, YTM: 2.29%, Duration: 4.76 years, 6M Performance: 4.62%.

MPACT Treasury

– Temasek-backed REIT owning VivoCity and diverse Grade-A assets in Singapore, HK, and North Asia. – Price: 108.69, YTM: 2.24%, Duration: 4.10 years, 6M Performance: 3.67%.

Starhub

– Integrated telecom (mobile, broadband, pay-TV), majority-owned by ST Telemedia (Temasek). – Price: 100.11, YTM: 2.46%, Duration: 4.96 years, 6M Performance: 4.97%.

US & Europe Non-Financial Corporates: Blue-Chip Bonds

Microsoft

– Tech leader with diversified businesses in OS, cloud, AI, and more. – Price: 87.54, YTM: 4.12%, Duration: 4.74 years, 6M Performance: 2.80%.

Meta Platforms (Facebook)

– Nearly 4 billion users, originator of global social media trends. – Price: 103.1, YTM: 4.05%, Duration: 4.00 years, 6M Performance: 1.10%.

Nvidia

– Dominant chipmaker in GPUs for gaming and AI, 80.2% market share in graphics cards (2Q23). – Price: 95.46, YTM: 3.94%, Duration: 4.18 years, 6M Performance: 2.63%.

Costco

– World’s 3rd largest retailer (membership-only big-box stores). – Price: 89.88, YTM: 4.02%, Duration: 4.36 years, 6M Performance: 3.02%.

Procter & Gamble

– 180+ year old consumer products giant, operations in 70+ countries. – Price: 95.86, YTM: 4.00%, Duration: 4.15 years, 6M Performance: 1.99%.

Nestle

– Largest food and beverage company globally, 2,000+ brands in 188 countries. – Price: 87.81, YTM: 4.18%, Duration: 5.53 years, 6M Performance: 2.96%.

Pepsico

– 2nd largest food and beverage company by revenue and market cap. – Price: 94.32, YTM: 4.13%, Duration: 4.15 years, 6M Performance: 2.12%.

Coca-Cola

– Sells the world’s best-selling soft drink in 200+ countries. – Price: 97.34, YTM: 4.10%, Duration: 4.11 years, 6M Performance: 1.65%.

Pfizer

– Leading global pharma with diversified portfolio, largest by 2022 revenue. – Price: 93.73, YTM: 4.14%, Duration: 4.20 years, 6M Performance: 2.58%.

BP Capital America

– Global oil & gas powerhouse, 2.3 million barrels/day production (2022). – Price: 89.87, YTM: 4.57%, Duration: 5.69 years, 6M Performance: 2.51%.

McDonald’s Corp

– The world’s largest fast-food chain, 40,000+ locations. – Price: 97.4, YTM: 4.20%, Duration: 4.35 years, 6M Performance: 2.24%.

Walt Disney

– Iconic entertainment leader, film studios, theme parks, streaming, media networks. – Price: 98.8, YTM: 4.09%, Duration: 4.07 years, 6M Performance: 2.07%.

Global Financial Institutions: Key Bond Picks and Issuer Analysis

National Australia Bank (NAB) 4.6% 18 Mar 2030: Bond Spotlight

About the Issuer:
One of Australia’s “Big Four” banks, serving ~9 million customers globally.
Equity market cap: AUD 128.55bn (as of Sep 3, 2025).
Outstanding bonds: 353, totaling AUD 205.70bn; average maturity 4.95 years, average coupon 3.43%.
Credit rating: AA- (S&P), Aa2 (Moody’s).
Investment Thesis:

• 3Q2025 cash profit: AUD 1.77bn (slightly ahead of expectations).
• Net Interest Margin (NIM) up +4 bps QoQ; revenue rose ~3% QoQ.
• Loan impairment charge: AUD 254m (~13bps of loans); non-performing loans at 1.54% of total.
• Robust capital, CET1 ratio 12.14% (pre-dividend), above the “unquestionably strong” benchmark (10.25%).
• Liquidity Coverage Ratio (LCR): 135% (well above minimum).
• Cash Return on Equity (RoE): 11.7% (1H2025).
• Bond offers solid 4.32% YTM in AUD, matches recommendation for quality, ~5-year maturity, and currency diversification.

Credit Views and Spread Analysis

US Investment Grade (IG) Credit

– IG spreads have tightened to 0.78%, a multi-decade low, justified by strong earnings across sectors. – IG yields (~5.1%) well above long-term inflation expectations (~2.4%), offering attractive real yields. – Caution: During downturns, IG bonds can face downgrades; avoid high-yield (HY) as spreads are tight and risks elevated. – Maintain focus on 5-year maturities for price stability and income.

Asia/China Credit

– IG spreads in Asia widened by ~2bp in September due to anticipated US supply surge. – Regulatory changes in Australia may support spreads in 5-7 year senior bonds. – China tech: Meituan faces margin pressure; Alibaba and Tencent offer relative safety, with Tencent’s long bonds preferred. – Xiaomi upgraded by Moody’s, but tight spreads suggest carry is preferable to new allocation.

Asia Pacific Sovereign Yields: Regional Overview

Bond ETF & Fund Radar: Diversification and Hedging

Bond funds offer diversification, but investors must weigh interest rate, credit, and currency risks. Fund managers now offer various hedged share classes (SGD, EUR, AUD, HKD, CNH) to manage FX volatility.

• High-yield allocation increases risk and volatility.
• Yield alone should not drive allocation; always consider risk-return and hedging costs.
• Consult fund prospectuses and advisers to align with your risk tolerance and objectives.

Conclusion: Tactical Positioning for an Uncertain Fixed Income Landscape

With synchronized fiscal strains, persistent inflation, and evolving tariff and refinancing risks, fixed income investors face a more complex landscape in late 2025. The consensus: stay tactical and diversified, favor strong investment grade credits with moderate durations, and embrace currency diversification—in particular, consider the AUD and gold as hedges against de-dollarization. Prepare for volatility, avoid stretched high-yield, and double down on conviction names that can weather the storm.
This report was prepared by Qi Wang, Chief Investment Officer, UOB Kay Hian Private Wealth Management.