Unlike April's Liberation Day tariffs, the US resumption of reciprocal tariffs in August did not result in significant volatility in asset markets, with losses in Asian equities being modest. Asian credit markets also did not see any sharp dislocation or sell-offs. With the US having negotiated a 15% tariff rate with the EU and Japan, and with deals for Indonesia and Vietnam also setting prior expectations, the final tariff rates of between 10% to 25% for most Asian economies were quietly accepted without excessive market consternation. Reflecting relief that tariffs were better than feared, Thailand even said that the new 19% tariff rate can be considered as competitive enough to boost investor confidence.

Looking beyond the immediate market reaction, US tariffs should still weigh on Asian exports. Some large Asian manufacturers have already reported an impact on profits due to tariffs in Q2, and such earnings risks may turn more prominent following the restart of reciprocal US tariffs. Meanwhile, Chinese demand remains sluggish, evident from the slippage in China's manufacturing PMI to 49.3 in July. China is thus unlikely to compensate for any US demand shortfall due to tariffs. With Asian USD credit spreads still near cyclical lows, we believe risks lie towards a re-widening in spreads as markets assess the coming squeeze in Asian corporate profitability. Across sectors, industrials and basic materials are likely to underperform from a slowdown in manufacturing activity, while financials may be more resilient.

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.