India, Indonesia May Fare Best as G-3 Curve Steepens: Analysts
(Bloomberg) -- India and Indonesia’s yield curves may be best positioned to avoid steepening with the rest of emerging-market Asia as rates in the region follow spreads in the U.S., EU and Japan higher, say analysts.
- Long-term yields for Indonesia are unlikely to climb because of robust demand supported by bets on more rate cuts, according to Takahide Irimura, Tokyo-based economist at Mitsubishi UFJ Kokusai Asset Management
- Better-than-expected revenue from a tax-amnesty program should also lessen the govt.’s need to sell more debt, he says
- India’s yield curve may be flatter for longer, as government is seeking to contain inflation, says Arvind Sampath, head of treasury at Fullerton India
- Expects RBI to conduct OMOs or other liquidity injections over the next two weeks closer to festive outflows; also says 10-year yield should consolidate around 6.75% level
- Countries that offer lower yields than Indonesia and India, such as Thailand, South Korea, and Malaysia, may see a bear- steepening bias to their curves, according to Mitsubishi UFJ Kokusai
- A global bear-steepening trend picked up ahead of BOJ’s new yield-curve control policy introduced in September, while Fed’s Yellen sparked gains at the long-end last week by floating the possibility of letting the U.S. economy run hot
- Malaysia, South Korea and Thailand, part of major EM bond indexes, accept fund flows from benchmarked investors, meaning they are more sensitive to the global environment, says Irimura
- Many central banks in Asia are still set to ease, which will help keep short-end of the curve anchored
- Spread between U.S. 2- and 10-year yields rose to ~96bps last week from the year’s low of 74.89 in July. In Germany, the spread widened to more than 70bps last week, from the year’s low of 49.51 in July, according to Bloomberg data
- Meanwhile, South Korea’s 2/10-year spread reached 24.90 bps on Oct. 17, the widest since June. In Thailand, it touched 68.06 on Monday, up from 58.21 at end-September. Indonesia’s spread narrows to 33.5 bps from 48.4 bps for the same period
- Countries with high foreign holdings of their local currency debt are susceptible to higher U.S. yields, according to Nagaraj Kulkarni, senior Asia rates strategist at Standard Chartered
- “We also need higher inflation for curve-steepening, which is not what the authorities are aiming at in India,” says Fullerton’s Sampath
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers 15524 JP (Kokusai Asset Management Co Ltd)
People Arvind Sampath (Fullerton India Credit Co Ltd)
Nagaraj Kulkarni (Standard Chartered PLC)
Takahide Irimura (Mitsubishi UFJ Kokusai Asset Management Co Ltd)
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