Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

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

In our monthly recap note, we provide a performance update for our weekly trade recommendations in currencies and rates. We also discuss the new recommendations as well as those that we closed over the past month. We have made a total of 23 trade recommendations so far, of which 17 are in the money.

In our monthly recap note, we provide a performance update for our weekly trade recommendations in currencies and rates. We also discuss the new recommendations as well as those that we closed over the past month. We have made a total of 23 trade recommendations so far, of which 17 are in the money.

Alpha Bites: Performance Summary of Trade Recommendations – September 2021

In this week’s Alpha Bites, we recommend receiving the 10-year rate vs paying the 5-year rate in Thailand. Rate curves in Asia have lagged the rest of EM and the US in flattening since March-end, partly because curves in Asia did not steepen as much in the first place as other EM curves did earlier this year. Also, Asian countries lag in monetary tightening cycles. Among Asian countries, we like a flattener in Thailand as the curve is already pricing in a very weak growth scenario. More recently, the prospect of the government raising its debt ceiling cap has led to the long end underperforming relative to the belly, which we believe should be impacted similarly.

In this week’s Alpha Bites, we recommend receiving the 10-year rate vs paying the 5-year rate in Thailand. Rate curves in Asia have lagged the rest of EM and the US in flattening since March-end, partly because curves in Asia did not steepen as much in the first place as other EM curves did earlier this year. Also, Asian countries lag in monetary tightening cycles. Among Asian countries, we like a flattener in Thailand as the curve is already pricing in a very weak growth scenario. More recently, the prospect of the government raising its debt ceiling cap has led to the long end underperforming relative to the belly, which we believe should be impacted similarly.

Alpha Bites: A Beta-Neutral 5s10s Flattener in Thailand

Among the themes in EM rates that we have highlighted in recent weeks are: EM rates have underperformed the US and, within EM, rates in Latin America have underperformed Asia. In this note, we look at the performances of rates in different countries adjusted by their respective betas that corroborate the earlier findings and help identify the outliers more clearly.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.

Among the themes in EM rates that we have highlighted in recent weeks are: EM rates have underperformed the US and, within EM, rates in Latin America have underperformed Asia. In this note, we look at the performances of rates in different countries adjusted by their respective betas that corroborate the earlier findings and help identify the outliers more clearly.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 Countries Are Outliers Within EM Rates This Year?

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

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)

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

Alpha Bites: Performance Summary of Trade Recommendations – September 2021

We provide a performance update of all our trade recommendations along with discussing the new trades from last month. We have made a total of 23...

Gautam Jain, PhD, CFA

Alpha Bites: A Beta-Neutral 5s10s Flattener in Thailand

We recommend a flattener in Thailand as the curve has lagged the flattening in the US and other regions of EM due to growth downgrades delaying...

Gautam Jain, PhD, CFA

Rates 10y Dashboard: Which Countries Are Outliers Within EM Rates This Year?

Looking at the beta-adjusted performances of rates in EM countries corroborates our earlier findings that EM has lagged the US and LatAm rates have...

Gautam Jain, PhD, CFA

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

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52-week Range

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