Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

With the US 10y yield and 5y5y forward inflation expectations rising, the correlation of EM rates with the US has risen sharply. We discuss the reasons behind this along with what it means for EM rates going forward and the strategy to pursue.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

With the US 10y yield and 5y5y forward inflation expectations rising, the correlation of EM rates with the US has risen sharply. We discuss the reasons behind this along with what it means for EM rates going forward and the strategy to pursue.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Correlation of EM Rates with the US Rises Sharply

The rates curve in Brazil has been flattening on a combination of aggressive monetary tightening by the central bank and lowering of the risk premium on a better-than-expected fiscal performance. Given the risks ahead, primarily the rise in political uncertainty heading into next year's presidential election and the likely fiscal slippage, a curve steepener in Brazil offers an attractive entry point to express a bearish view. A low-risk approach to express the same view is via a butterfly.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

The rates curve in Brazil has been flattening on a combination of aggressive monetary tightening by the central bank and lowering of the risk premium on a better-than-expected fiscal performance. Given the risks ahead, primarily the rise in political uncertainty heading into next year's presidential election and the likely fiscal slippage, a curve steepener in Brazil offers an attractive entry point to express a bearish view. A low-risk approach to express the same view is via a butterfly.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Does the Curve Flattening in Brazil Offer an Opportunity?

Colombia's central bank started its monetary tightening cycle last week. The rate hike was in line with our expectations and supported our 2s5s flattener recommendation. We expect the curve to flatten further towards its historical norm on the back of a likely acceleration in the pace of rate hikes with inflation continuing to increase. Despite our expectations, we recommend closing the trade as the high negative carry may cancel the gains if the flattening is gradual.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Colombia's central bank started its monetary tightening cycle last week. The rate hike was in line with our expectations and supported our 2s5s flattener recommendation. We expect the curve to flatten further towards its historical norm on the back of a likely acceleration in the pace of rate hikes with inflation continuing to increase. Despite our expectations, we recommend closing the trade as the high negative carry may cancel the gains if the flattening is gradual.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Take Profits on Colombia 2s5s Flattener

As rates in the US have started rising again, their correlation with EM rates has reasserted. We compare the current sell-off with the 2013 Taper Tantrum and the one earlier this year, which shows that the sensitivity of EM rates to the US has increased. While the increase in the beta leaves EM rates more vulnerable to a continued rise in the US rates, we are inclined to look for oversold levels in select EM countries to receive long-end rates hedged with payers or initiating flatteners.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

As rates in the US have started rising again, their correlation with EM rates has reasserted. We compare the current sell-off with the 2013 Taper Tantrum and the one earlier this year, which shows that the sensitivity of EM rates to the US has increased. While the increase in the beta leaves EM rates more vulnerable to a continued rise in the US rates, we are inclined to look for oversold levels in select EM countries to receive long-end rates hedged with payers or initiating flatteners.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: Rising Sensitivity of EM Rates to the US

The Fed signaled yesterday that it may start tapering its asset purchase program as soon as the next FOMC meeting in November. With the US 10y yield staying within the narrow range where it has traded since early July following the announcement, EM curves continue to normalize with those too steep starting to flatten, and vice versa. We expect the process has further to run and continue to recommend holding flatteners in Colombia, India, and Thailand, and a steepener in Russia.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

The Fed signaled yesterday that it may start tapering its asset purchase program as soon as the next FOMC meeting in November. With the US 10y yield staying within the narrow range where it has traded since early July following the announcement, EM curves continue to normalize with those too steep starting to flatten, and vice versa. We expect the process has further to run and continue to recommend holding flatteners in Colombia, India, and Thailand, and a steepener in Russia.Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.

Rates 10y Dashboard: EM 2s5s Slopes Continue to Normalize

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CLP 10Y (CHSWP10 CURNCY)

Rates 10y Dashboard: Correlation of EM Rates with the US Rises Sharply

We discuss the reasons behind the sharp rise in the correlation of EM rates with the US along with what it means for EM rates going forward and the...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Does the Curve Flattening in Brazil Offer an Opportunity?

With political uncertainty and fiscal slippage likely to rise heading into next year's presidential election, a curve steepener in Brazil offers an...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Take Profits on Colombia 2s5s Flattener

We recommend taking profits on our 2s5s rate curve flattening recommendation in Colombia. We expected the short end to move higher as the central...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Rising Sensitivity of EM Rates to the US

When we compare the current sell-off in EM rates with the 2013 Taper Tantrum and the one earlier this year when US rates sold off similarly, we...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: EM 2s5s Slopes Continue to Normalize

EM curves have been normalizing with US long-end rates staying in a narrow range since early July, even after the tapering signal from the Fed...

Gautam Jain, PhD, CFA

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52-week Range

Market Cap (USDm)

P/E

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