Asian US dollar-denominated bonds have been a boon for investors in the past few years, led by improving credit fundamentals and mild disinflation.
Of late, however, there are indications the rally is overcooked. Interest rates are at their lowest levels for four decades following the United States Federal Reserve's quarter-point rate cut last week, which has weakened investor confidence in US treasuries in the process.
Cheaply priced bonds have become increasingly rare and credit spreads - the amount by which corporate bond yields exceed the yield on treasuries - have narrowed as profit margins and balance sheets improve, while the rate of corporate defaults declines.
Many market watchers expect the United States to hit 4 per cent growth next year with the attendant likelihood of higher inflation.
With the prospects for Asian equities appearing to offer good value, many investors are reassessing their bond strategies.
'Successful bond investing has become much more of a challenge. Two years ago, you could have bought just about any Asian US dollar bond and the chances are that since then, you would have seen credit spreads tighten dramatically,' said Damien Wood of ING Financial Markets.
In the short term, stocks look better bets than bonds but according to Citicorp Smith Barney regional head of strategy Ajay Kapur, it is debatable whether this holds true for the longer term.
