Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>Even as the US 10y yield has come off the peak, rates in emerging markets – including in Asia – have been selling off as they remain under pressure.</li>
<li>Rates in Asia are vulnerable as they are expensive vis-à-vis the rest of EM, rising inflation should result in further rate hikes in the region, and debt profiles have deteriorated.</li>
<li>I thus expect rates in Asia to underperform and prefer selling bonds in the region paired with long bond positions in countries in other regions.</li>
</ul>


Even as the US 10y yield has come off the peak, rates in emerging markets – including in Asia – have been selling off as they remain under pressure.
Rates in Asia are vulnerable as they are expensive vis-à-vis the rest of EM, rising inflation should result in further rate hikes in the region, and debt profiles have deteriorated.
I thus expect rates in Asia to underperform and prefer selling bonds in the region paired with long bond positions in countries in other regions.


Yields in Asia Are Far from the Peak – Part II

<ul>
<li>Notwithstanding the economic uncertainties, with the Fed’s path better defined now than a few weeks ago, I expect the volatility of rates to peak in the coming weeks.</li>
<li>Uncertainty around the Fed's rate hikes has been spilling over to the monetary policy paths of EM countries even though many of them have been raising rates since last year.</li>
<li>If the US rates volatility falls as I expect, then it will be supportive of the short ends of EM rate curves in Latin American and Central European countries.</li>
</ul>


Notwithstanding the economic uncertainties, with the Fed’s path better defined now than a few weeks ago, I expect the volatility of rates to peak in the coming weeks.
Uncertainty around the Fed's rate hikes has been spilling over to the monetary policy paths of EM countries even though many of them have been raising rates since last year.
If the US rates volatility falls as I expect, then it will be supportive of the short ends of EM rate curves in Latin American and Central European countries.


In this week’s Alpha Bites, I recommend closing rate curve flatteners in Thailand and India. I had recommended flatteners in these two countries as curves in Asian countries in general lagged the flattening in the US and the rest of EM. This was because of rising growth uncertainty resulting from new coronavirus waves amid slow pace of vaccinations. This is now changing as rate curves in both countries have begun to price in monetary tightening, leading to flattening of the curves.

In this week’s Alpha Bites, I recommend closing rate curve flatteners in Thailand and India. I had recommended flatteners in these two countries as curves in Asian countries in general lagged the flattening in the US and the rest of EM. This was because of rising growth uncertainty resulting from new coronavirus waves amid slow pace of vaccinations. This is now changing as rate curves in both countries have begun to price in monetary tightening, leading to flattening of the curves.

Alpha Bites: Take Profits on Flattener Recommendations in Thailand and India

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the trades in more detail. The tables include expected returns on the trades on a 3-month horizon assuming mean reversion in this period.

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the trades in more detail. The tables include expected returns on the trades on a 3-month horizon assuming mean reversion in this period.

Alpha Bites: Current Trade Recommendations in EM FX and Rates

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

Thailand

A vanilla interest rate swap is 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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THB 10Y (TBSWO10 CURNCY)

Yields in Asia Are Far from the Peak – Part II

Rates in Asia are vulnerable to further correction as they are expensive versus the rest of EM, rising inflation should result in further rate...

Gautam Jain, PhD, CFA

How Are Fed’s Rate Hikes Impacting EM?

I expect the volatility of rates to peak in the coming weeks, which should be supportive of the short ends of EM rate curves in Latin American and...

Gautam Jain, PhD, CFA

Alpha Bites: Take Profits on Flattener Recommendations in Thailand and India

I recommend closing flattener recommendations in Thailand and India as rate curves in both countries have begun to price in monetary tightening,...

Gautam Jain, PhD, CFA

Alpha Bites: Current Trade Recommendations in EM FX and Rates

In this edition of Alpha Bites, I list my current open trade recommendations in EM FX and rates along with links to notes where I discuss the...

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)