DBS: Asia Rates 2022: Growth Priorities vs Fed Concerns
alanyeo
Relatively firm US growth compared to EM and a hawkish US Fed will prove challenging for Asia rates in early 2022
Bond supply pressures and possible demand gaps as central banks and domestic banks pull back on their bond purchases are additional challenges for Asia
The environment for Asia rates could turn more conducive later this year when Fed pricing/Asia tightening gets digested
Key Theme 1 – Asia rates performance could deteriorate in the early part of the Fed tightening cycle. It is too early to receive against aggressive Asia hike pricings.
Key Theme 2 – China’s divergences on growth trajectory and policy bias to be fully reflected in the outperformance of CNY rates in 2022.
Key Theme 3 – Cheap valuations and low foreign ownership across Asia bonds could provide some cushion against the expected challenging environment.
On a relative basis, we expect China, Indonesia and South Korea bonds to outperform. And Thailand and Malaysia bonds to underperform.
