G3 and Asia govvies are showing significant performance dispersion amidst a strong USD. Within the G3 space, UST and Bund yields have dipped significantly since a month ago. Some of this can probably be attributed to haven demand amidst political uncertainty in Europe. Unsurprisingly, JGBs have not benefitted given that the BOJ is still on a tightening path and absolute yields are still too low to provide adequate event risk hedge if sentiment sours. Within Asia, KTBs, IGBs, SGS and HKD swaps are the outperformers. SGD and HKD rates have historically had high correlations with USD rates and their outperformance is to be expected. Meanwhile, index-inclusion tailwinds may have helped IGBs hold up even as the USD stayed strong. Interestingly. KTBs performed relatively well despite won weakness. Conversely, performance for IndoGBs, CGBs and Thai GBs are lackluster. In this cycle, their respective central banks have hiked relatively little compared to the Fed. For the PBoC and the BoT, domestic economic considerations (weak growth and low inflation) probably play a huge part in keeping rates low. Accordingly, room for easing may be more limited when the Fed cuts, and could perhaps explain why these govvies did not rally in tandem with USTs. For Indonesia, the strong USD environment (and a hint of domestic fiscal concerns) is proving challenging, impacting sentiment on both the IDR and IndoGBs.
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