APAC Financials in October: spread volatility creates relative value

In Oct 2026, lower Treasury yields drove positive total returns across the major credit markets. The 5-year US Treasury yield fell 37bp MoM to 4.72% at month-end. The average OAS of Asia Financials (APACDOL index) widened 23bp MoM to 107bp, a level similar to that of the APAC index. The sector's monthly total return of 1.3% was also in line with the APAC index, with a similar average duration of c.5 years. Financials' OAS remains c.17-18bp tighter than that of Industrials and Utilities bonds but offers a 39bp premium over APAC sovereign bonds. By capital structure, EM Asia AT1 spreads widened 104bp MoM to 249bp at month-end, driven by Indonesian AT1s with yield to call reached 8.3%, while Australian and Japanese AT1s widened 47bp and 37bp MoM to 168bp and 186bp respectively. EM Asia was the only region to continue seeing substantial new issues in Oct, at USD2.65bn, or close to 80% of total supply being capital bond. Fitch and S&P took positive rating actions at end-Oct.