Junk debt from Asia is beating bonds almost everywhere in 2026

Asian high-yield debt, particularly Chinese-backed bonds, has outperformed global debt benchmarks in 2026. Bloomberg data reveals that these "junk" dollar bonds have generated a 4.3% return this year, outpacing US peers by 2.5 percentage points and beating numerous global debt metrics. The surge in performance is driven by China's near-record low borrowing costs and regional economic growth, resulting in lower default rates.

However, the gap between Chinese and US benchmark yields has widened to an all-time high. The dominance of Asian junk bonds is also attributed to local currency funding, which is often cheaper or comparable to offshore US dollar funding. While concerns over inflation and potential US Federal Reserve rate hikes pose headwinds, Asian central banks outside of China may need to raise rates to stem outflows, making borrowing more expensive for firms.

Despite this, Chinese junk dollar bonds have gained 0.2% so far in September, while overall Asian high-yield notes lost 0.4%. Nonetheless, this is still more favorable than most other bond classes, which have experienced larger losses. Still, there are signs of a rebound in issuance, particularly from lower-rated Chinese companies and Japanese issuers, as the world's second-largest economy struggles with deflationary pressures.