Invesco has released its 2026 investment outlook, highlighting the continued outperformance of Asian high-yield bonds. Short-term Asian high-yield bonds (1–2 years) offer greater investment value, providing a stable yield pickup of over 1–2% compared to BBB-rated bonds.
For short-term high-yield bonds, Invesco is optimistic about sectors such as frontier sovereign debt, subordinated bank capital, renewable energy, and gaming—particularly GALAXY ENT (00027)—due to their clear refinancing pathways. The firm also identifies select B-rated bonds with potential total returns of up to 10%.
Year-to-date (as of November 7, 2025), the Asian high-yield bond market has consistently outperformed its European and U.S. counterparts and is on track to deliver the highest total returns for the second consecutive year. Despite this strong performance and a revival in primary market issuance, the Asian high-yield bond market continues to shrink. By the end of October 2025, the market size had declined further, with the J.P. Morgan Asia Credit High Yield Index's market capitalization at $118 billion—roughly half of its December 2021 level.
Valuation-wise, the relative advantage of Asian high-yield bonds has narrowed due to their sustained outperformance. Asian BB-rated bonds now offer yields on par with U.S. BB-rated bonds, but Asian B-rated bonds still provide a yield pickup of around 90 basis points over U.S. B-rated bonds.
Invesco suggests focusing on whether Asian high-yield bonds offer additional capital appreciation potential. This potential lies in high-quality credits trading between 80 and 100 cents on the dollar, which account for over 50% of the index and could benefit from further price recovery toward par. Coupled with the index's 5.75% coupon, this should help stabilize total return expectations for 2026.
On the risk front, default rates for Asian high-yield bonds (excluding real estate) remain low. However, Invesco remains highly cautious about issuers with insufficient cash to cover short-term debt or negative free cash flow outflows. The firm also emphasizes private credit as an alternative financing channel for Asian high-yield issuers, stressing the importance of credit structure and creditor protection, as private credit investors may hold stronger positions in potential restructuring scenarios.
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