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The developments over the past week produced a complex macro backdrop for Asian rates. The hawkish shift in Fed rhetorics pushed UST yields and the US dollar higher, compressing carry and duration appeal across Asia, while the US-Iran interim deal pulled oil lower and lifted equities, creating a partial offset. The impact of these opposing forces on Asian govvies is asymmetric: Fed repricing, as evident in higher front-end rates and OIS markets pricing in a September hike, remains a persistent structural headwind for duration, while the Iran peace deal remains fragile, conditional and subject to reversal on any breakdown in the 60-day negotiating window.
Amidst this backdrop, India stands out as relatively constructive in the region, with IGBs supported by structural drivers including capital flow liberalisation, contained inflation print, and expectations of sizeable foreign inflows. This has underpinned a rally in the 10Y G-sec from its May peak, and it has since remained stable through volatile external developments last week.
In contrast, IndoGBs have been one of the most volatile in the region, with 10Y IndoGB yields experiencing larger swings amid external pressures and FX weakness. While BI’s hikes have provided intermittent stabilisation, rallies have been difficult to sustain as USD strength and policy uncertainty continue to weigh. The core constraint could be that monetary tightening alone may be insufficient to fully offset broader concerns around policy uncertainty and execution, leaving valuations relatively attractive but investors' conviction limited in the near term.
Malaysia remains range-bound, with MGS yields anchored by BNM’s policy hold, though risks are increasingly concentrated in the ringgit amid USD strength and fiscal concerns. Thailand offers one of the steepest curves in the region, underpinned by a dovish policy stance and weak growth outlook, supporting the case for long-end duration despite near-term headwinds from foreign outflows. The Philippines presents a more challenging backdrop, with ongoing policy tightening, elevated inflation, and still-negative real policy rate shaping a cautious duration outlook, alongside continued currency pressure.
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