The repricing across ASEAN and India rates over the past week reflects a renewed convergence of external headwinds. Markets have had to contend with the re-emergence of hawkish Fed pricing alongside a renewed rise in oil prices. Notably, the selloff has been far from uniform, highlighting the extent to which idiosyncratic local factors and varying domestic cushions continue to shape the transmission of external shocks across the region.
India and Indonesia have both seen the belly of their curves come under the greatest pressure. In Indonesia, the selloff has been concentrated in the belly and front end, while the 10Y sector has remained comparatively resilient. Part of the move likely reflects the combination of US front-end repricing and an upside surprise in August CPI, resulting in some unwinding after an exceptionally strong month for Indonesian bonds in August. The weakness in the 5Y sector may also reflect concession-building ahead of upcoming supply on top of higher global term premiums. That said, continued declines in SRBI yields should further reduce the crowding-out effect and provide a supportive offset for the front end. At current levels, the 5Y sector also looks increasingly attractive relative to the rest of the curve, with the 5s10s spread now inverted and scope for some normalisation once supply-related pressures are absorbed.
India's G-Sec curve has also seen greater pressure in the belly, although the underlying drivers are somewhat different. With the closure of the FCNR(B) window, a key source of structural support for the belly has faded, leaving the 5Y sector more exposed to moves in global rates and oil prices. With this, we see scope for further compression in the IndoGB-IGB 5Y spread, given that yesterday's selloff in the IndoGB belly appears somewhat stretched, while the weakness in the IGB 5Y reflects the erosion of structural support. While the 10Y sector has also sold off, the front end has seen comparatively limited repricing, likely reflecting the fact that short-dated yields were already trading at elevated levels heading into the latest episode. Notably, the rupee has remained resilient even as both bond and equity markets came under pressure.
Low-yield markets Malaysia and Thailand have instead seen the long end bear the brunt of the adjustment. Short-end yields have risen only modestly as policy expectations remain anchored, leaving longer maturities more exposed to higher global term premiums and adverse carry dynamics relative to US Treasuries. With limited carry cushion available to absorb additional volatility, these markets remain sensitive to further upside pressure in long-end UST yields.
The Philippines stands apart as the market where domestic policy dynamics are reinforcing tighter global financial conditions. Following last week's hike, BSP has already delivered three hikes this year and now appears relatively advanced in its tightening cycle. Government bond yields are screening elevated relative to policy rates, US Treasuries and regional peers. With this, investors' focus may gradually shift towards potential inflection points that could pave the way for a transition towards a hold.
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