February 22, 2024

Emerging Asia Sees New Bond Market Realities

Emerging Asia saw its bonds reacting to signals that indicate recovery from inflation, as well as improved foreign exchange. This helps to prepare the market to gain recovery as soon as the US Federal Reserve rescinds its hawkishness.

Asian Markets Might be Rallying Faster than Expected 

According to the global consulting firm, Goldman Sachs, there will be enough impact for a better inflation perspective at this point. The most recent consumer price indexes from the Philippines, Thailand, and South Korea were below target. The effect of the Federal Reserve’s hawkish policies on Asian markets is also reducing.

If the US inflation peaks or there is the implementation of a high-interest rate, it might push Asian debt markets into a strong rally. A statistic of emerging Asian bonds dropped by almost 1.4% between July and now in tandem with the America Treasuries. It is in comparison with the 6% loss in the previous quarter.

An investment manager, Jin Lee, said that local activities are a lot more significant drivers for Asian bonds than ever before. He said further that the region is comfortable extending the market weakness duration when they are less sensitive to the American Treasury.

The attendant conditions are supportive as visible in three ways which are, first, inflation height. Analysts are watching out for signals of when domestic inflation would reach its peak and it will be one of the signals to buy bonds. 

Resistance to the US Hawkish Policies

The inflation in South Korea is signaling that it is about to top out as commodity prices jumped by 5.7% last month from their prices a year ago. This is the first time in a space of 10 months that the numbers came in under what analysts expected.

Korea’s central bank has the most advantage in the Asian region with regard to interest rate increments. Now that inflation is receding, it might as well be the first bank to complete the cycle. The Philippines also had a lower inflation rate in August.

The second condition is the inflow of foreign bonds. For the first time in about six months, Indonesia and India saw foreign bonds inflow, whereas funds from around the world entered Thailand’s debt.

The third factor is a reduced reaction to the hawkish bets coming from the US. The ten-year bond yields from Indonesia, Malaysia, and Thailand have shown that they are not seriously affected by US hawkish estimations for August. Their correlation with the US two-year bond yields equally dropped. 

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