South-East Asian economies have continued to outperform global growth statistics -- a trend that has not gone unnoticed by yield-starved investors.

CDS spreads have tightened in some ASEAN countries in the last year. Local debt issuances have seen yields fall since the fourth quarter of last year, while dollar-denominated debt continues to provide additional yield over US debt, even as the spread has been narrowing.

In an attempt to kick-start meaningful growth since the financial crisis, Western economies have been engaging in loose monetary policies in order to stimulate growth.

Interest rates have remained below 1% since the crisis, and with deflationary fears added to the mix, central banks have resorted to further unconventional monetary measures.

As a consequence, long-term government bond yields have collapsed with all Western economies seeing bond yields dip below 2% this year. Europe and Japan, which have been engaged in reflationary monetary policies such as quantitative easing, have seen their currencies depreciate against the US dollar. As a result, investors are looking to other areas of the fixed-income market for returns.

SE Asian stability
Investors chasing yield are now looking at emerging markets, in particular, sovereign bonds. Interest is particularly strong in South-East Asia where the ASEAN-5, namely Thailand, Malaysia, Indonesia, Philippines, and Vietnam had been standout performers.

Macroeconomic conditions have been improving in the region. According to the IMF, growth in 2014 was a healthy 4.5%, and is projected to be over 5% in the next two years, far outstripping the global average. Current account deficits have been narrowing, benchmark interest rates remain at historical lows and prices have remained relatively stable. ASEAN-5, so far, also has been resilient to the recent fluctuations in oil price, as most remain net importers and benefit from the falling energy prices. Big exporters, such as Malaysia, have done enough to diversify their economies over the years. This contrasts with other emerging market commodity-producing countries such as Russia, Nigeria and Brazil.

On the credit front, four of the ASEAN-5 countries have secured investment grade ratings, with Vietnam the only one in junk territory, albeit by one notch, according to Markit iBoxx. Five-year CDS spreads have also come down in the last year, with the exception of those of Malaysia. The cost to protect against Thai debt is now below that of advanced European economies such as Spain and Italy.

Bond returns
Local 10-year currency bonds saw yields hold steady in the region in the two years leading up to the last quarter of 2014. Yields have since tightened across the board with Thailand in particular seeing its ten-year borrow yield drop by more than a third to 2.77%, driven by the region's strong growth and depressed global yields. Indonesia has been the exception as it yields more than 7%, a figure largely attributed to its high target interest rate.

A more comparative way to look at bond returns may be to look at the Eurodollar market or US denominated debt issued by a foreign entity. Only three of the five countries issue in US dollars, and Vietnam only issues shorter-term debt. The standout here is the Philippines whose dollar denominated debt provides around 95bps extra yield above equivalent US treasuries. The country grew 6.9% year-on-year in the last quarter, enjoys relatively stable inflation at 2.4%, runs a current account surplus, and looks the strongest among the five economies. For now, at least, the chase for yield is bringing investors back to emerging markets, particularly to South-East Asia where growth remains healthy and markets are robust.

Neil Mehta is the London-based vice-president, fixed income commentary and research, Markit