In fixed income, we continue to remain neutral on duration. Within Developed Markets, we hold neutral and underweight positions in Investment Grade and High Yield bonds, respectively. Within Emerging Markets, we are neutral on corporates and underweight on sovereigns.

Eli Lee
Chief Investment Strategist,
Bank of Singapore

Fixed income offers conditional protection, with outcomes largely shaped by whether an oil shock manifests primarily as an inflationary or a growth shock.

During periods of oil‑driven stress, risk aversion typically rises, prompting capital to rotate toward higher‑quality assets. Market dispersion widens, with High Yield (HY) bonds experiencing materially greater spread widening than Investment Grade (IG) credit. Issuers with weaker fundamentals and a higher reliance on external financing are particularly vulnerable, as geopolitical risk premia increase. In this environment, maintaining exposure to high‑quality, defensive credit remains an effective way to mitigate downside risk.

Government bonds, however, provide uneven protection. Historically, they have been more effective hedges against growth shocks than inflation shocks, limiting their reliability during energy‑driven disruptions.

When inflation concerns outweigh growth risks, long‑duration assets typically underperform. As a result, positioning portfolios toward the shorter end of the yield curve generally provides better protection in the initial phase of an oil shock.

At the same time, prolonged energy disruptions raise the risks of stagflation, higher unemployment, and subdued economic growth, which could eventually prompt the Federal Reserve to pivot toward policy easing at a later stage. Reflecting these offsetting forces, we maintain a Neutral stance on duration at the portfolio level.

At the sector level, defensive sectors such as telecommunications and consumer staples, alongside energy‑leveraged sectors — including upstream oil and gas, commodity producers, and energy exporters — tend to be more resilient. By contrast, energy importers, downstream refiners, petrochemicals, and cyclical sectors — such as ports, real estate, shipping, airlines, autos, and consumer discretionary — are more likely to face negative impacts.

Overall, within fixed income, our focus remains on resilience, as we expect market volatility and downside risks to stay elevated, particularly if inflationary pressures persist and monetary easing is delayed. Against this backdrop, active duration management and diversification are critical. We continue to favour high‑quality, defensive credit exposures while maintaining a Neutral stance on duration at the overall portfolio level.

In Developed Markets (DM), we hold a Neutral allocation to IG bonds and remain Underweight High HY bonds. In Emerging Markets (EM), we are Neutral on corporates while maintaining an Underweight position in sovereign debt.

US Treasuries

Our research indicates that government bonds provide uneven protection during an oil supply shock. Historically, they have been more effective in hedging growth shocks than inflation shocks, which limits their reliability as a defensive buffer during energy‑driven disruptions.

The US Treasury (UST) yield curve has bear‑flattened month‑to‑date, reflecting shifting market expectations. While the Federal Reserve’s median dot plot continues to signal rate cuts in 2025, Fed funds futures are no longer pricing in any easing as of 30 March 2026. OCBC Group Research maintains its base case expectation of one 25bp Fed funds rate cut in 2025. Looking ahead, UST yields are likely to remain volatile, driven by evolving signals on inflation, labour market conditions, and fiscal policy.

Persistently high energy prices increase the risk of stagflation, prompting central banks to delay monetary easing for now. When inflation concerns outweigh growth risks, long‑duration assets typically underperform, making short‑duration positioning relatively more defensive during the initial phase of an oil shock. However, a prolonged period of energy disruption could eventually tilt the balance toward weaker growth and rising unemployment, potentially leading the Fed to pivot toward policy easing at a later stage.

Reflecting these countervailing forces, we continue to maintain a Neutral stance on duration at the portfolio level.

Developed Markets

As of 27 March 2026, DM IG bonds (‑1.1% total return) have outperformed DM HY bonds (‑1.6%) on a year‑to‑date basis. This has occurred alongside only modest spread decompression (6bps for IG versus 15bps for HY), despite IG carrying a longer duration profile (8.9 years versus 4.2 years). Against this backdrop, we maintain a Neutral allocation to DM IG bonds and remain Underweight DM HY.

Amid ongoing macro uncertainty and late‑cycle credit dynamics, we continue to favour high‑quality, defensive credit exposures. That said, rate volatility, together with increased bond issuance to finance AI‑related capex and M&A activity, could lead to greater performance dispersion and pose headwinds to US IG. In a scenario of prolonged energy disruption, European credit spreads are also likely to underperform their US counterparts, given Europe’s heavier reliance on energy imports.

Within US Dollar‑denominated DM IG, Australia (‑0.7%) has generally outperformed peers in the U.S. (‑1.1%), Western Europe (‑0.8%), and Japan (‑0.9%) on a year‑to‑date basis. This relative outperformance has been supported by a shorter duration profile and positive spread performance. While not immune to rising energy prices, Australia is comparatively better positioned to weather energy shocks, underpinned by a stable regulatory framework, a AAA credit rating, strong fiscal fundamentals, and limited exposure to AI‑driven volatility and Middle East geopolitical risks.

Emerging Markets Corporates

Emerging Market
EM corporate bonds have outperformed their DM peers on a year‑to‑date basis. That said, the potential growth and inflation spill‑over effects from ongoing Middle East conflicts — along with shifts in fund flows driven by changes in global risk sentiment — remain key factors to monitor for the broader EM credit landscape.

Asia
Asia outperformed its EM peers in March, reflecting the region’s relatively defensive characteristics. We maintain a Neutral view on Asia and expect higher‑quality China IG bonds to prove more resilient than higher‑beta exposures such as India, Indonesia, and Thailand.

As a net energy importer, Asia is exposed to the adverse effects of higher oil prices through multiple transmission channels, including: (i) higher inflation; (ii) widening oil and gas trade deficits for economies heavily reliant on imported energy (e.g. Japan, South Korea, Thailand, India, Taiwan, and the Philippines); (iii) an increased fiscal burden from fuel subsidies in countries such as Indonesia, Malaysia, and Thailand; (iv) currency depreciation; and (v) weaker private consumption. That said, the impact is likely to be uneven across the region, reflecting differing policy buffers and external balances.

We expect selected Asian governments to deploy fiscal buffers and off‑budget measures where feasible to cushion the growth impact of an oil shock. Given heightened uncertainty, Asian central banks are likely to adopt a cautious initial stance, though we do not rule out rate hikes should energy disruptions prove prolonged and inflationary pressures intensify.

Emerging Markets Sovereigns

Hard‑currency EM sovereign bonds faced a more challenging environment in March, as investors rotated toward capital preservation, liquidity, and policy credibility, leading to more defensive positioning across the asset class.

Performance dispersion increased across both rating categories and regions. Higher‑quality sovereigns proved more resilient, while lower‑rated and frontier credits came under renewed pressure. IG sovereigns marginally outperformed HY, reflecting a flight‑to‑quality amid rising geopolitical uncertainty. For the month, IG returned ‑0.7%, compared with ‑0.8% for HY.

Overall, EM sovereign spreads widened modestly over the month, reversing part of the tightening seen earlier in the year. While the HY-IG spread differential remains elevated relative to historical averages — continuing to offer attractive carry — this compensation comes alongside heightened volatility, warranting a more selective and risk‑aware approach.

Looking ahead, EM sovereign debt continues to offer attractive carry, particularly among BBB‑rated and select HY credits with improving fiscal trajectories and manageable refinancing profiles. That said, elevated geopolitical risks and shifting global interest‑rate expectations warrant a cautious and selective approach. We favour sovereigns supported by credible policy frameworks, strong reserve buffers, and improving debt dynamics.