Asia rates: CGB, IGB, and MGS outperform
Most succumbed to higher US rates and stronger USD.
Group Research - Econs, Suvro Sakar12 Jun 2024
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Only a handful of Asia EMs have been able to resist the pull of higher rates and weaker currency year-to-date. CGB and IGB are the rare outperformers, followed by MGS.

For China, CGB yields continue to fall alongside mixed data prints. While April’s export growth and trade balance provide some comfort, the falling official Manufacturing PMIs warrant investors’ concern on the pace of recovery. RRR and rate cut expectations are building up. The spread between 10Y CGB and UST YTD has widened at a much faster pace of 82bps amongst major Asia peers. Yet, CNY only depreciated moderately by 2.2% against the USD alongside PBOC’s effort in stabilizing the currency (see our latest China chartbook). These have made CGB the outperformer in the region.  

Likewise, the 10Y IGB-UST spread has tightened by 72bps YTD, while INR barely depreciated against USD. This is attributed to tailwinds from India’s eligible bonds being included into the JPM-EM index and Bloomberg’s EM Local Currency Index. The ongoing FDI inflow and improving trade balance are also keeping INR rates at bay. Meanwhile, the MGS fares well. The MGS-UST spread compressed by 43bps year-to-date. The inflow through exports and tourism upswings are keeping MGS rates in-check. On the FX side, MYR saw mild depreciation of 2.7% against USD alongside BNM and government-linked companies’ efforts of repatriating foreign investment income into MYR.

Samuel Tse 

Economist - China & Hong Kong 
[email protected]

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