Escalating trade tensions between US and China, on top of uncertainty over US trade policy after Trump's 90-day reprieve on reciprocal tariffs, are likely to weigh on global credit market sentiment. Pervasive uncertainty of the impact of tariffs on global supply chains and producer costs, on top of prospects of higher prices for consumers and a slowdown in demand, mean that investors are likely to stay cautious. Asian USD credit spreads have already widened by 34bps year-to-date based on our DACS index, with broad-based widening across all markets including China, Hong Kong, Korea, India, and Indonesia.

Chinese LGFV related credit could be more resilient, as they are underpinned by Chinese state support. The central government has already planned for RMB10trn of bond issuance for local governments to conduct debt swaps for hidden LGFV debt over 2024-2028. Increased fiscal resources could help limit default risks. On the other hand, Chinese financials credit could see more questions over their asset quality. Historically, a slowdown in Chinese exports is correlated with an increase in the systemwide NPL ratio. A further widening in Chinese financial credit spreads could be likely amid elevated tariffs and trade tensions.

DBS Aggregate Credit Spread or DACS indices show the aggregate credit spread, weighted by market capitalization and modified duration, for Asian corporate USD-denominated straight bonds. The higher is the DACS, the higher is the additional yield that can be earned in credit, and the higher is the perception of credit risks in markets.

Our first visual shows the notional outstanding of bonds from five Asian economies that comprise the Asia ex-Japan (AXJ) DACS index. These five economies are China, Hong Kong, Korea, India and Indonesia.

The second visual shows the notional outstanding split into industry sectors for the aggregate AXJ DACS index, and DACS indices for each of the five economies. Individual economies can be selected via the dropdown.

Our last visual illustrates the DACS index readings over time for AXJ or an individual economy. It is also possible to drill into the constituent sectors of the DACS indices using the second dropdown. Such sectoral DACS indices are shown on an individual economy basis when data is sufficient, and on an aggregated AXJ basis when otherwise.