Intermediate-duration bonds offer a yield pick-up

The US Federal Reserve has resumed its interest rate cutting cycle after a nine month break. Starting with 25 basis points (bps) last month, the Fed is expected to continue cutting this year and the next. This will put pressure on other central banks to do the same, thereby bringing down bond yields around the world.

Against this backdrop, investors who do not take steps to lock in yields will see their bond interest payments dwindle further. One way to maintain payments at current levels is to marginally lengthen the average duration of the bonds that they hold.

For example, 2-year Singapore Government Securities (SGS) Treasuries are yielding about 1.5 percent, compared to 1.9 percent yield for the 10-year¹. Notably, the yield curve flattens out beyond this point, i.e. bond durations beyond 10-years do not see enjoy a corresponding increase in yields.

Fig 1: Singapore Government Securities Yield Curve

^{Source: MAS, 1 Oct 2025}

Total returns matter

Also important to consider is the fact that longer duration bonds are more sensitive to interest rate movements. When interest rates fall, bond prices tend to rise, and this price rise will be more pronounced for longer duration bonds.

Within credits (i.e. corporate bonds), lower rates also reduce borrowing costs for corporates, resulting in improved cash flows and fundamentals. This can further support bond price appreciation across the investment grade and high yield credit segments.

As such, compared to short duration bonds, those in the intermediate 3 - 7 years duration range stand out in the current rate environment for having a higher potential for both yields and capital upside. And compared to very long duration bonds (>10 years), intermediate duration bonds match their yields without being overly affected by shifts in interest rate expectations.

About the United Asian Bond Fund

The United Asian Bond Fund (the “Fund”) fits nicely into this intermediate duration space. It invests in high quality bonds issued by Asian corporates, financial institutions, governments and their agencies. While the Fund’s duration allows for stable income and capital appreciation, the Asian bond exposure takes advantage of the region’s strong regional fundamentals, improving corporate credit profiles, and relatively higher yields.

Here are some current Fund features:

• Attractive yield
  As of 31 August 2025, the Fund offers a weighted average yield to maturity of 5.85 percent p.a. - an attractive option in today’s lower interest rate environment. For comparison, the yield on the latest six-month Treasury bill (T-bill) has dropped to 1.44 percent p.a., down from 3.05 percent p.a. at the start of the year².
  
  
• High quality
  The Fund holds investment grade bonds with an average credit rating of BBB. Such a positioning enables investors to benefit from higher yields than A-rated investment grade bonds, while avoiding the default risk of lower-rated bonds. In particular, the Fund manager looks out for undervalued bonds issued by companies with improving fundamentals. These bonds typically offer higher yields and the potential for credit spread tightening.
  
  
• Positioned for rate cuts
  With an intermediate duration of 4.75 years (as of 31 August 2025), the Fund appears to also be well-positioned for the US Federal Reserve’s rate cutting cycle. By holding bonds of intermediate duration, the Fund is able to lock in yields before interest rates decline further and benefit from potential bond price gains as rates fall. Over the past one year, the Fund has already shown positive returns of 3.9 percent (as of 31 August 2025).
  
  
• Lower volatility than peers
  Over the past three years, the Fund has delivered positive returns with lower risk. The Fund’s 3-year standard deviation is 4.6 percent, considerably lower than the 7.2 percent volatility of the widely-tracked J.P. Morgan Asia Credit Index (JACI) - Core³. The Fund’s standard deviation is also below that of its Morningstar peer group average⁴.
  
  
• Diversified Asian bond exposure
  The Fund currently holds 78 bonds from issuers across a wide range of Asian economies to capitalise on the region’s varied growth drivers. Bonds from China make up the largest allocation (18.8 percent), followed by Indonesia (13.8 percent) and Hong Kong (13.0 percent).
  
  In terms of sector allocation, the Fund maintains a tilt towards the financials sector, which makes up 49.8 percent of the portfolio. This reflects the Fund manager’s conviction in the strength and reliability of Asian financial institutions, many of which have stable earnings, robust balance sheets, and are well-supported by their respective governments. Beyond financials, the Fund is also diversified across other key sectors including consumer discretionary, government and real estate.

Fig 2: Fund sector allocation

^{Source: UOBAM, 31 Aug 2025}

Relative to peers

^{Source: Morningstar as of 31 August 2025. | Refers to United Asian Bond Fund – Class SGD Dist | Fund performance is calculated on a NAV to NAV basis. Past performance is not necessarily indicative of future performance. | Peers category (Morningstar): Asian Bond. Does not include the effect of the current subscription fee that is charged, which an investor might or might not pay.}

Fund details

¹Source: MAS, as of 1 Oct 2025
²Source: MAS, as of 29 Sep 2025
³Source: UOBAM, BlackRock, as of 31 August 2025
⁴Peers category (Morningstar): Asian Bond.