Group Research – Econs, Ma Tieying 24 Mar 2021

More upside to US and Asia rates/bond yields.

The Biden administration is reportedly working on a USD3tn fiscal package with a significant infrastructure component. This comes on the back of the USD1.9tn American Rescue Plan signed into law earlier this month.

If the prospects of this USD3tn package being passed are to rise, we could get another bout of bear-steepening pressures on the US curve, and a beta reaction across Asia curves.

On the rates front, while we have seen some pushbacks from ECB and BOJ against rising long-term Euro sovereigns and JGB yields, the US Fed has been much more relaxed towards higher UST yields. This has allowed US rates to rise on a relative basis.

We are forecasting further upside to US and Asia rates/bond yields and since the broad USD continue to be supported, we think Asia bond investors should generally be short duration and swap to USD, where possible. On this, Korea Monetary Stabilization Bonds and Malaysia Treasury Bills rank best, in terms of the yield pick-ups they offer.