10Y government bond yields across the globe, with the exception of China, have risen meaningfully this year. Within the DM space, 10Y JGBs and Gilts saw the largest yield increases this year. JGBs have been exceedingly volatile this year but we suspect that upside for the ultra-long longs may already be capped amidst indications that GPIF may want to allocate more to domestic assets. Intuitively, this makes sense. If long-end yields are sufficiently high (ultras close to 4%), there is little incentive for domestic investors to take foreign asset risk. Conversely, Gilts got hit by fiscal worries amidst leadership transition. Indications that off-budget measures may be utilised to fund infrastructure spending appears to be the key trigger. Investors will be awaiting to see how the new PM navigates within the fiscal constraints.
In Asia, IndoGBs still show some scarring from the US-Iran conflict. However, there have been some signs of stability following prudent measures and tighter policy from BI. KTBs also underperformed amidst signs of an overheating economy and a hawkish BOK. CGBs still stand out as the clear outperformer as economic traction prove elusive. We note that SGS is also one of the strongest performers. However, if we look at the yield movements in the recent couple of weeks, SGS have not fared as well. Investors may be getting concerned about rich valuations and the prospect that the breakneck pace of inflows may slow. The upcoming 20Y Green SGS (Infra) has also just been announced (see here) with a minimum issuance size of SGD 2.1bn. This will be key barometer of demand for long-end SGS at a time when yields still look relatively depressed.
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