Asian bonds to get little support from currency gains in 2024
Asian sovereign bonds in emerging markets may find support more from expectations of rate cuts than currency gains in 2024.
A dovish US Federal Reserve could create room for Asian central banks to cut interest rates, benefiting bonds. However, the resilience of the US economy means that potential US dollar losses are uncertain, impacting the strength of local currencies to support bonds.
According to Alvin Tan of RBC Capital Markets, duration is likely to outperform, while emerging market currencies might see limited gains or losses in the first half.
The disinflation trend in emerging Asia, coupled with real policy rates above historical averages, indicates room for rate cuts by regional authorities.
Citigroup strategists note that global core yields softening and a retreat in oil prices create a favorable setup for EM Asia duration.
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