UOB Kay Hian Wealth Management
Date of Report: September 5, 2025
Global Fixed Income Outlook September 2025: Navigating Tariffs, Rate Cuts, and Rising Yields for Smart Bond Investing

Executive Summary: Core Views and Strategic Recommendations

Bond markets are at a crossroads in September 2025. The probability of a US Federal Reserve rate cut this month has shifted from “likely” to “near certainty,” yet beyond September, the outlook is clouded with persistent inflation risks, tariff-driven volatility, and global fiscal challenges. UOB Kay Hian Wealth Management recommends investors remain tactical, diversified, and selective—especially in light of evolving risks around tariffs, refinancing, and de-dollarization. This month’s bond highlight is National Australia Bank (NAB) 4.6% due March 2030, offering currency diversification and robust credit quality.

• Fed rate cut in September almost certain; inflation remains sticky, especially in housing, services, and energy.
• Tariffs increasingly impact bond markets, with recent legal developments adding volatility and nudging long-term yields higher.
• Strong demand for US Treasury auctions masks underlying fiscal risks and refinancing concerns as the government pivots to more short-term T-bill issuance.
• Major developed markets (UK, Germany, Japan) are seeing record-high long-term yields due to synchronized fiscal and debt challenges.
• Investment Grade (IG) credits maintain strong earnings support; focus on high-quality corporates with ~5-year maturities.
• Prepare for possible IG downgrades in recession; double down on high-conviction names that can weather macro stress.

Analyst: Qi Wang, Chief Investment Officer, Private Wealth Management

Bond Radar: Top Investment Grade Credit Ideas and Performance

Below is a curated list of popular IG bonds, spanning Asia, Australia, Europe, and the US. These selections showcase sector leadership, strong fundamentals, and attractive yield-to-maturity profiles. The addition of the NAB AUD bond reflects the ongoing push for currency diversification.

US & Europe Non-Financials Corporates

Global Financial Institutions

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

NAB stands out as Australia’s largest business bank, rated AA- by S&P and Aa2 by Moody’s. The bank’s recent 3Q2025 results show a cash profit of AUD 1.77b, exceeding expectations, with a net interest margin improving by 4 bps quarter-on-quarter. The bank’s CET1 ratio stands at a robust 12.14%, well above benchmarks, further supported by healthy collective provisions and a liquidity coverage ratio of 135%.

• YTM: 4.32% (AUD-denominated, due March 2030)
• High-quality, senior unsecured debt—consistent with recommendations for ~5 year maturities and currency diversification
• Strong earnings, resilient asset quality, and ample capital buffer
• Currency diversification: AUD increasingly attractive versus USD

Macro Commentary: Inflation, Tariffs, and Fiscal Trends

Fed Cuts Likely, but Inflation and Fiscal Risks Persist

Recent US data, including July’s PPI shock (+0.9% mom), underscores inflationary risks in services and energy. While the Fed is now focused more on labor market weakness, sticky inflation and strong consumption mean policy is still in flux. The Atlanta Fed’s GDPNow model forecasts 3Q GDP growth at 3.0%, indicating resilience despite a softening labor market.

• US tariffs now average 20%—the highest in a century—adding complexity and uncertainty for bond investors.
• Tariffs are a fiscal lifeline (boosting revenue), but legal challenges may trigger heightened volatility and push yields higher.
• Record demand for US T-bills; however, increased short-term borrowing raises refinancing and liquidity risks, reinforcing the need for diversification.
• Long-term sovereign yields in UK, Germany, and Japan have reached multi-decade highs amid sticky inflation and slowing growth.

Credit Views: Corporate Bonds, Volatility, and Spread Analysis

US Investment Grade Credit: Strength and Risks

Investment grade (IG) spreads remain tight, justified by robust earnings across sectors. Average IG yields (~5.1%) provide attractive real returns versus long-term inflation (~2.4%). However, investors should not underestimate bond market volatility; downgrades from IG to high yield (“fallen angels”) can spike during downturns, leading to forced selling and mark-to-market losses.

• Favor high-quality corporates with ~5-year maturities for optimal balance of yield and price stability.
• Be ready to buy dips in high-conviction names during market dislocations.
• Avoid high-yield bonds—spreads are priced for perfection, offering little cushion against downgrades.

Asia/China Credit: Selectivity Amid Supply and Competitive Pressures

Asian IG spreads widened slightly in anticipation of post-Labor Day US supply. In Australia, regulatory changes to covered bonds may reduce senior supply, supporting spreads in 5-7 year maturities. Select China tech credits show mixed performance:

• Meituan: 2Q net profit dropped 90% yoy due to intense food delivery competition; spreads face near-term pressure.
• Alibaba: Inline results; AI and cloud computing are positives but ongoing delivery subsidies signal margin pressure.
• Tencent: Relative safe haven within single-A credits, offering attractive long-end bonds.
• Xiaomi: Upgraded to Baa1 by Moody’s; strong EV/IoT execution, but spread valuations are high versus peers.
• FWD Group: Steady 1H earnings, with market awaiting deleveraging details.
• CNOOC: Softer 1H earnings, but robust IG profile and steady cash flow.
• Bangkok Bank: CET1 ratio at 16.7%, confirming call of its 5% AT1; strong balance sheet, Tier-2 offers relative value.

Credit Spreads and Yields: Asia vs US

Bond ETF & Fund Radar: Diversification and Performance

Investors seeking diversified exposure can consider a variety of bond ETFs and funds, each offering different risk-return profiles, durations, and currency hedging options. Key factors include credit quality, average yield to maturity, and expense ratios.

Recent Performance Data

Conclusion: Tactical Allocation and Diversification Are Key

September 2025 presents a complex landscape for bond investors: persistent inflation, tariff-driven volatility, synchronized fiscal challenges, and refinancing risks. UOB Kay Hian Wealth Management advises investors to focus on high-quality credits with moderate durations (around 5 years), diversify currency exposure, and remain vigilant for buying opportunities amid volatility. Currency-hedged ETFs and funds offer additional tools for risk management. The NAB 4.6% AUD 2030 bond exemplifies the strategy of blending quality with diversification.

Stay informed, stay diversified, and stay tactical to navigate the evolving global fixed income markets.