Investment Rating - The report suggests that Asia credit investors should consider turning defensive due to expected widening of Asia IG spreads driven by tariff risks and weaker demand [2][8]. Core Insights - The Asia IG spread is anticipated to widen from its current range of 70-80 basis points to a base case of 93 basis points in the second half of 2025 [8][15]. - The report highlights three key decompression trades for investors: preferring Japan IG over Asia IG, preferring APAC financial IG over non-financial IG, and buying protection on iTraxx Asia ex Japan IG [27][28][34]. Summary by Sections Asia IG Spread Analysis - Asia IG spreads have remained resilient despite global pressures, trading in a tight range of 70-80 basis points, currently at 76 basis points [12][15]. - The report indicates that the current tight spread levels do not reflect the risks associated with US tariffs and weaker growth in Asia [21][23]. Tariff Risks - The report emphasizes that US tariff risks are expected to increase, which could lead to weaker growth in Asia, particularly affecting economies like China, Taiwan, and Korea [16][20]. - The US administration is expected to announce reciprocal tariffs on April 2, which could further impact Asia credit spreads [28]. Credit Demand Trends - Asia credit funds experienced significant inflows of approximately US$2.5 billion in January, but this trend has slowed down, with inflows dropping to US$641 million in February [23][25]. - The report notes a disparity in fund performance, with many Asia credit funds experiencing outflows, particularly those without Mutual Recognition Fund (MRF) approvals [25][26]. Recommended Trades - **Trade 1**: Prefer Japan IG over Asia IG, as investors can switch without losing spread, currently gaining 8 basis points instead of the historical loss of 50 basis points [28][29]. - **Trade 2**: Prefer APAC financial IG over non-financial IG, as financials are viewed as more defensive due to strong sovereign support [34]. - **Trade 3**: Buy protection on iTraxx Asia ex Japan IG, as current spreads do not adequately price in US tariff risks [36][37].