MARKET COMMENTARY
The past month was shaped primarily by a sustained fall in crude oil prices. Brent declined to $79.78 per barrel and WTI dropped to $75.05, as progress in the US–Iran nuclear negotiations helped unwind a portion of the geopolitical risk premium embedded in energy markets. The diplomatic turn, combined with OPEC's managed supply trajectory, drove prices materially lower over the period. For Asia's net energy importers — across ASEAN, India, and North Asia — this offers a genuine terms-of-trade improvement: import bills ease, current account positions stabilise, and central banks recover room that prior energy price pressures had eroded. The channel into Asian credit runs through both fundamentals (lower energy costs, better fiscal headroom for energy-importing sovereigns) and the discount rate applied to regional credit, where even a modest easing of inflation expectations matters at the margin. However, since then, the back-and-forth of diplomatic tensions has remained elevated with Iran and the US alternating threats to close the Straits. Nonetheless, the flow of vessels has resumed, helping keep oil prices more stable, as we move past the $90+ oil levels seen in May and early June.
US 10-year Treasury yields rose 8.2 bps over the period to close at 4.57%, within a range of 4.37% to 4.57% as markets price in the geopolitical developments as well as the strong domestic US economy. The Fed remains on hold, and the market has modestly repriced the timing of easing as near-term activity data has held up, keeping yields anchored at the upper end of a familiar range. The dollar index firmed 1.35% to 101.10, reflecting relative US resilience rather than a fresh directional move. For Asian credit, the rate headwind was real but measured — and, as spreads indicate, well-absorbed.
Spreads have remained stable due to several structural improvements. China's sensitivity to the oil price move has structurally diminished. Policy-driven electrification, an accelerating energy self-sufficiency drive, near-term inventory adjustments, and shifts in export-related energy consumption have all reduced the economy's net import exposure to global crude prices. The directional benefit of lower oil persists, but the macro multiplier is more contained than in prior cycles. In India, the RBI has taken a balance-sheet approach rather than deploying rate instruments in response to energy-price volatility — fortifying external buffers through the foreign currency non-resident (FCNR) deposit programme, which is expected to attract meaningful diaspora inflows and support rupee stability, leaving Indian sovereign and quasi-sovereign credit fundamentals on a sound footing. Asian investment-grade credit absorbed the rate move without spread deterioration: JACI IG z-spread closed the period unchanged at 83 bps, and the marginal negative total return of 0.05% reflects the rate component alone. Regional institutional capital continues to provide a steady bid, new issuance has cleared without difficulty, and we view the fundamental and technical support for current spread levels as durable.
PORTFOLIO COMMENTARY
Over the trailing twelve months, the portfolio returned 7.47% against 4.46% for JACI Investment Grade, an outperformance of just over 300 bps, underpinned by the structural positioning we have maintained across carry, duration, and name selection. Year to date, the fund has returned 0.67% versus 0.44% for the benchmark. This past month the portfolio returned 0.33%, comfortably ahead of the benchmark's marginal decline of 0.05%, as the carry advantage and our positioning in names that held through the rate move both contributed.
Trading this past month was organised around two related themes. On energy, we reduced exposure as spreads tightened and oil prices were strong earlier in the month, particularly Santos and Woodside. We simultaneously rolled an Aramco position, selling the 5.75% 2054 and reinvesting in the 6.375% 2055 to extend duration modestly and improve carry within the same high-quality issuer. Greensaif Pipelines was trimmed as spreads had compressed to a level offering less forward value, especially amid US Treasury strength (prior to re-escalation) when the US 10-year yield hit 4.35%. Alongside this, we added selectively to Indonesian state-owned enterprise (SOE) credit: Danantara Investment Management (2031 and 2036s), where state backing and Indonesia's sovereign wealth mandate provide a strong institutional anchor, as well as to Freeport Indonesia, a strategically important copper miner that had widened in spread. We also added to Power Finance Corporation 5.32% 2031, a quasi-sovereign Indian infrastructure lender whose spread we find attractive relative to its credit quality and policy backing. We trimmed Bangkok Bank bonds, where spread tightening gave us the opportunity to redeploy into names with better carry.
The portfolio's yield-to-worst stands at 5.95% against the benchmark's 4.9%, with duration of 5.85 years versus 4.44 years for JACI IG. Option-adjusted spread is 153 bps against the benchmark's 56 bps, and the average rating is BBB+ versus the benchmark's A — a deliberate preference for credits where spread reflects the fundamental quality, and across a diversified base of 99 issuers. The duration overweight reflects our view that the roll-down available at the longer end of the Asian IG curve remains an attractive source of return, and that rates will drift modestly lower as the Fed's neutral path reasserts itself over the remainder of the year. We enter the second half constructively, with carry leading the return profile and the technical backdrop remaining supportive.
We appreciate your support, and please do not hesitate to contact us with any questions or feedback.
NIVEDITA SUNIL
On behalf of LOIM Asia Fixed Income team
condividi.