Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.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.

Even though EM rate curves have been flattening in line with the US, rates in EM have underperformed the rally in the US. The main difference is unlike the US, and DM more generally, emerging countries have broadly started tightening monetary policy. Real rates in EM are thus much higher than in the US. We continue to find the spread of EM to the US attractive, especially with EM rates volatility dropping below its long-term average.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: Higher Real Rates in EM than in DM

EM rates continue to lag the rally in US rates, resulting in a drop in the correlation between the two. We also find that the cross-correlations between EM rates have dropped in contrast with EM currencies. A direct implication of this is, unlike EM currencies, there are greater relative-value opportunities within the EM rates universe.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.

EM rates continue to lag the rally in US rates, resulting in a drop in the correlation between the two. We also find that the cross-correlations between EM rates have dropped in contrast with EM currencies. A direct implication of this is, unlike EM currencies, there are greater relative-value opportunities within the EM rates universe.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: Cross-Correlations Between EM Rates Drop

Long-end rates in EM have not kept up with the rally in US rates, with the notable exception of Turkey. The rally in Turkish rates has been impressive especially when factoring in the recent spike in inflation. Nevertheless, Turkish rates should continue to outperform as we expect the central bank to ease later this year and the macroeconomic and technical backdrops have improved. However, any position in Turkey is inherently risky because of political meddling in monetary policymaking.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.

Long-end rates in EM have not kept up with the rally in US rates, with the notable exception of Turkey. The rally in Turkish rates has been impressive especially when factoring in the recent spike in inflation. Nevertheless, Turkish rates should continue to outperform as we expect the central bank to ease later this year and the macroeconomic and technical backdrops have improved. However, any position in Turkey is inherently risky because of political meddling in monetary policymaking.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: Are Rates in Turkey Due for a Reprieve?

Following the surprise rate hike by Mexico's central bank last week, the rates curve flattened dramatically. We have made the case before that the central bank should raise rates earlier than market expectations and the central bank's hawkish turn supports our recommendation to buy the Mexican peso against the Canadian dollar.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.

Following the surprise rate hike by Mexico's central bank last week, the rates curve flattened dramatically. We have made the case before that the central bank should raise rates earlier than market expectations and the central bank's hawkish turn supports our recommendation to buy the Mexican peso against the Canadian dollar.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: Mexico’s Curve Flattens Following the Rate Hike Surprise

With the Fed turning hawkish, the pressure on EM central banks to do the same has increased. In this note, we identify the countries where 2s5s slopes can flatten as rate hikes get priced in earlier than before.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 Fed turning hawkish, the pressure on EM central banks to do the same has increased. In this note, we identify the countries where 2s5s slopes can flatten as rate hikes get priced in earlier than before.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: Which EM Countries to Target for 2s5s Flatteners?

Poland

A vanila interest rate swap us an agreement between two counterparties to exchange cashflows (fixed vs floating) in the same currency. This agreement is often used by counterparties to change their fixed cashflows to floating or vice versa. The payments are made during the life of the swap in the frequency that is pre-established by the counterparties.

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Rates 10y Dashboard: Higher Real Rates in EM than in DM

Real rates in EM are much higher than in the US, making the spread of EM local debt to the US attractive, especially with EM rates volatility...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Cross-Correlations Between EM Rates Drop

We find that the cross-correlations between EM rates have dropped. A direct implication of this is, unlike EM currencies, there are greater...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Are Rates in Turkey Due for a Reprieve?

Long-end rates in Turkey have rallied despite the recent spike in inflation. Despite risks, we expect the outperformance to continue on the back of...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Mexico’s Curve Flattens Following the Rate Hike Surprise

Last week's hawkish surprise by Mexico's central bank supports our recommendation to buy the Mexican peso against the Canadian dollar.

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Which EM Countries to Target for 2s5s Flatteners?

With the Fed turning hawkish, we identify the EM countries where 2s5s slopes can flatten as rate hikes get priced in earlier than before.

Gautam Jain, PhD, CFA

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