As the yield curve in the region flattened, longer-dated bonds in Southeast Asia proved to be a profitable investment, and it appears that this trend will continue. Long-end notes may be supported by anticipation of a change in US policy, while shorter maturities are impacted by forecasts of continued high regional interest rates. The spreads for Malaysia and Thailand have also shrunk, while the difference between the two- and 10-year yields in Indonesia is at a multi-year low.
After falling for three months, global notes have rebounded as traders have increased their wagers that the Federal Reserve may start lowering interest rates in 2019. The job economy and US inflation appear to be slowing down, according to recent data, which makes investors wonder if it’s time to start buying bonds again. According to Abhay Gupta, strategist at Bank of America in Singapore, the recent flattening in the area has been driven by the Treasury rally on expectations of a peak in the Fed cycle, which has also led to the unwinding of bearish positions on duration.
This quarter, the flattening trend is anticipated to continue as longer-dated yields drop as a result of lessening pricing pressure. In contrast, Indonesian inflation has reverted to the central bank’s target range of 2%–4%. Last month, Thailand posted its first deflationary print in nearly two years. September saw the weakest pace of increase in consumer prices in Malaysia since March 2021. Policymakers will probably postpone adding more interest rates as a result. According to a Bloomberg survey, most analysts believe Bank Indonesia will stick with its current course during a review on Thursday. Meanwhile, Bloomberg Economics anticipates that the Bank of Thailand will remain unchanged during a meeting on November 29.