On 19 May 2017, S&P upgraded Indonesia’ sovereign rating to BBB- with a stable outlook from BB+ with a positive outlook. In the longer term, the market is expecting that this rating upgrade will result in inflows of as much as USD 5bn into the bond market, particularly from Japanese investors who require a full investment grade rating from the three rating agencies.
Activity in the US has disappointed relative to the high market expectations when Donald Trump first entered the White House. However, a cyclical recovery remains intact, with potential headwinds from prior fiscal policy tightening reversing and the pace of monetary policy tightening expected to remain gradual.
10-year US Treasury (UST) yields ended the month at 2.28%, about 11 basis points (bps) lower compared to end-March levels. Mixed economic data and rising geopolitical tensions drove sentiment over the month. Towards the month-end, market sentiment improved after pro-euro French presidential candidate Emmanuel Macron secured the most number of votes in the first round of elections.
US Treasury (UST) yields rose in the first half of the month buoyed by hawkish comments from the Federal Reserve (Fed), a solid US jobs report and possible scale back of quantitative easing (QE) by the European Central Bank (ECB). While the Fed raised short-term interest rates, as expected, the absence of a more hawkish tone from the central bank triggered a drop in UST yields.
US Treasury (UST) yields traded in a tight range in February. Risk assets rallied and UST yields rose in the first half of the month, on the back of the prospect of tax cuts and a Dodd-Frank overhaul in the US. Subsequently, yields were pressured lower by concerns about a possible victory by Marine Le Pen in France’s presidential elections. Overall, the 2-year and 10-year points on the UST curve ended the month about 6 basis points (bps) higher and 6bps lower respectively.
With President Trump announcing that he will be releasing his tax plans in the coming weeks, we have shifted to a more cautious position on US duration. The risk is that President Trump announces a sizeable stimulus package, with the backing of the broad Republican base. This would raise fears that the US Federal Reserve would need to act more quickly than expected, and with markets only pricing in two or three rate hikes in 2017, we believe that markets are under-pricing the risks of this announcement.
US Treasury (UST) yields ended higher in January as weaker-than-expected payroll data led markets to moderate their forecasts for Federal Reserve (Fed) rate hikes in 2017. Overall, 2-year and 10-year UST yields rose about 2 and 1 basis points (bps) respectively in the month.
Credit markets are expected to have another positive year. We expect economic growth in Asia to be stable but see some potential downside risks. In Europe, political risk remains high for 2017. Some of our key themes are: hybrid bonds, financials, oil/emerging markets and High Yield.
Economic growth in Asia is expected to remain broadly stable in 2017. While there will be greater external uncertainties as well as country-specific challenges, Asian economies are, on balance, better equipped to deal with external pressures compared to a few years back.
USTs weakened further in December, as caution prevailed following the November sell-off. As widely expected, the US Federal Reserve (Fed) raised interest rates by 25 basis points (bps). 10-year UST yields ended the month at 2.44%, about 6 basis points (bps) higher compared to end-November levels.