Bond Market Dynamics in primary and secondary markets

For the bond market, the first half of 2025 was characterised by highly volatile trading, as the effects of geopolitical tensions spilt into financial markets. Yields may be high, but there remain concerns over the impact of tariffs, persistent inflationary pressures, the future direction of monetary policy, and even the status of the USD as a reserve currency.

Looking ahead to the rest of the year, it is unlikely that investors will enjoy smoother waters: “It’s quite hard to see any real near-term resolution to many of the issues that both investors and issuers are facing today,” said Andrew Bothamley, Global Head of Debt Capital Markets at HSBC.

He was speaking during an episode of the HSBC podcast Global Viewpoint, which was on the recent dynamics in the primary and secondary bond markets. He was in conversation with George Sun, Head of Global Debt Markets, Asia Pacific, HSBC.

But despite the clear challenges, supply in the primary markets has proved resilient. Global USD bond issuance in the first half of 2025 was 3.7% higher than the same period in the previous year¹.

Mr. Bothamley highlighted several factors that are keeping issuance strong. The first is that issuers are taking advantage of strong market conditions, with an eye to the possibility that ongoing volatility could lead to market closure in the future. And on a related point, some issuers are expediting their plans to raise capital, which is in effect pulling forward supply that was expected to come to market later in the year.

More broadly, credit spreads are tight, and that creates a good backdrop for borrowers. There has however been a steepening in the US Treasury curve, which has put some borrowers off the long-end of the USD market, due to the interest costs. There is therefore a focus on shorter duration instruments.

Asia’s primary markets are a particular bright spot for new supply. USD bond issuance in the region was up 18.1% in the first half of 2025². China is a key part of the story, with new supply in the market rebounding sharply after a string of difficult years – especially 2022 and 2023. Another important contributor to the Asian supply is South Korea, which is growing its global market presence.

Issuance in Asia’s local currency market was particularly robust in 2025, extending a strong run in 2024. Although each individual market has its own drivers, there are some common themes that are applicable to much of the region, said Mr. Bothamley.

One theme is the low onshore rates that make it attractive for corporates to issue locally rather than go offshore to the USD market. Furthermore, local currency markets have become increasingly liquid, making it easier for them to absorb the increased issuance.

The demand is not only domestic, as there is a greater appetite among international investors for Asian currencies, leading to an expansion of the investable universe.

Finally, there is pricing, which can be very competitive relative to USD bonds. The Singapore market is a case in point, as it allows issuers the ability to print debt – especially subordinated products – at a cost that is compelling compared to other currencies.

Another important development for Asia’s fixed income markets is the internationalisation of Asian demand: “We continue to see a growth in investable wealth in Asia generally, and that is not only benefiting local currency markets, but international markets as well. The USD market continues to be the market of choice for investment,” said Mr. Bothamley.

These cross-regional flows are changing how deals are executed, as borrowers look to capture Asian liquidity. An issuer might market directly towards Asian investors, or they could announce a transaction during the Asian time zone, rather than waiting for London or New York to open, giving time to the region’s investors to place their orders.

It is not only Asia’s primary market that is performing well, as regional secondary market trading is also highly active. It is notable that more of the demand is coming from outside of Asia, as international investors look to diversify away from the USD. The AUD, HKD, and SGD, and to some extent INR, are proving popular.

“We’ve seen a market uptick in the secondary market so far in 2025,” said Mr. Sun. “Our hard currency credit business traded over USD50 billion so far this year, with 20% of demand actually coming from outside of Asia.”

He pointed to Hong Kong as a particularly busy secondary market, where volumes have tripled since 2021. Not only is there keen interest in local corporates, as some big international names have issued in Hong Kong – including multilateral development banks – bringing in further demand in the secondary market.

In addition, demand is amplified by the Southbound Channel of Bond Connect, which allows investors in mainland China to access international bonds through Hong Kong. “Hong Kong has become a very vibrant centre, not just for originating debt, but also for trading,” said Mr. Sun.

Technology is also helping to boost liquidity, as Asia’s credit markets become gradually more digitised. Electronic trading improves the speed and efficiency of execution, while at the same time increasing price transparency. It has become the norm for many parts of the bond market in Europe and the US, and in Asia it is gradually gaining ground – especially among institutional investors and private banks.

HSBC has developed a market-first live-streaming, two-way price guarantee in its click-to-trade algorithm model. It is already very active, with more than 5000 trades every day, providing liquidity to the broader market.

The lively secondary market in Asia nicely complements the active primary markets. In effect, they create a virtuous circle: liquid markets are attractive to issuers, while investors know that increased supply can help further boost liquidity. And it is against this positive backdrop that Asia’s bond markets are thriving, despite the turbulence seen in other parts of the world.