- Steady Outlook Ahead10 Jan 2025
- Rate Cut Outlook on Track13 Dec 2024
- Slowing Disinflation06 Dec 2024
10Y government bond yields across the DM space generally ended higher through 2024 despite meaningful easing across major central banks. In the US, 10Y yields are 65bps higher despite 100bps of Fed easing thus far. Similarly, 10Y Bund yields are up by 34bps despite 100bps of cuts by the ECB and considerably worse economic conditions in the Eurozone, compared to the US. Within the G3, only Japan showed correlation with monetary policy direction as BOJ rate hikes drive JGB yields higher. The takeaway from this episode highlights the importance of drivers beyond monetary policy in driving duration. Between resilient US growth, fiscal worries and inflation upside from Trump’s policies, some term premium has got to be worked into the UST curve. Consequently, some spillover unto the rest of the world is inevitable. These conditions proved challenging across EM space as policymakers face a conflict between supporting domestic growth or preserving currency stability amidst sharply higher US yields and a much stronger USD. Outside of Asia, 10Y local currency EM govvie yields were generally sharply higher. Within Asia, the picture is mixed. Economic weakness in China, Thailand and Korea prompted dovish actions from their respective central banks. With FX weakness within tolerable bounds, 10Y yields in these economies registered declines despite a difficult external environment. On the other end, IndoGBs had a lackluster performance as BI acted prudently and placed greater weight on rupiah stability.
As 2025 kicks off, attention will be paid to the actual policy announcements from the Trump administration. Trump trades did well in 4Q and USTs continued selling off until the last few trading days of the year. Duration worries will likely feature heavily this year, but in the short term, there may be scope for yield retracement if sentiment gets dicey. We suspect that EM will face a challenging backdrop amidst a higher tariff environment. A weaker US economy (and consequently lower rates and weaker USD) is the much-needed respite but it is not clear at this point that this will materialize. Rate movements are likely to be headline driven with the macro backdrop still keeping yields broadly buoyant.
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- Steady Outlook Ahead10 Jan 2025
- Rate Cut Outlook on Track13 Dec 2024
- Slowing Disinflation06 Dec 2024
- Steady Outlook Ahead10 Jan 2025
- Rate Cut Outlook on Track13 Dec 2024
- Slowing Disinflation06 Dec 2024