Asia And The Reflation Trade
A lot has been written about the possible impact of rising US Treasury yields on equities and other risk assets, but what about bond markets in Asia? How have they fared?
A woman buys fruits at a supermarket in Manila, the Philippines Source: Shutterstock
ASEAN bond markets hardest hit, but with one exception, not excessive
The first point to note is that so far, outside Asia-Pacific, the US Treasury yields move has been received in a fairly orderly fashion. This has not been a one-way move and has still left most risk assets close to all-time highs. There is no sense, for example, that central banks anywhere need to step in to protect investors, many of whom are still up massively over the last 15 months or so. Analysts’ forecasts continue to suggest that regional monetary authorities (with the odd exception) will ride out the current bond rout and keep policy rates unchanged.
That said, there has been a significant impact on local currency bond yields in the APAC region which will inevitably exert some downward pressure on recovery prospects as it feeds through into higher borrowing rates. This has been most notable in ASEAN markets, where 10-year yields have broadly tracked those of US Treasuries, with a slight tendency for local currency government bond yields to rise more than respective USTs. This is the case for Malaysia, Indonesia, and Singapore.
But even in developed markets, such as Australia, the same tendency is shown. This does not appear to be an emerging market vs developed market story. At least not yet. New Zealand has seen a smaller increase in its benchmark 10-year government bond yields. But that mainly stems from new government measures to dampen their booming housing market, reflected in a failed quantitative easing operation recently which suggests that local bond investors already believe the sell-off has gone far enough. In contrast, there has been a proportionately much smaller rise in bond yields in North Asian economies - Korea, Taiwan, and Japan.
Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
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Bert Colijn is a Senior Eurozone Economist at ING. He joined the firm in July 2015 and covers the global economy with a specific focus on the Eurozone. Prior to this, he worked at The Conference Board, a global think-tank, in Brussels focusing mostly on long-term economic growth. He holds an undergraduate and graduate degree in International Economics and Business from the University of Groningen.
Carlo is an Economist at ING and has been with the firm since January 2016. He is mainly interested in the future of banking, blockchain and virtual currencies. He began his career at Barings Asset Management and holds an MSc in Economics. 
Inga Fechner is an economist at ING in Germany, covering international economic developments with a specific focus on Austria. She joined the company in 2014 after graduating in Economics from the University of Münster, with studies abroad in Japan and Italy.
Marieke Blom is the Chief Economist at ING in the Netherlands.
Maurice van Sante is a Senior Economist covering the construction and real estate sectors. He joined ING in 1998 and till 2006 he was a treasury advisor and cash manager consultant. Maurice studied Economics at the Erasmus University in Rotterdam.
Peter Vanden Houte is Chief Economist Belgium, Eurozone and has been working with ING in various research functions for the last 20 years. He is also chairman of the “economic commission” at the Belgian Employers Federation.
Robert Carnell is Chief Economist and Head of Research, Asia-Pacific, based in Singapore. For the previous 13 years, he was Chief International Economist in London and has also worked for Commonwealth Bank of Australia, Schroder Investment Management, and the UK Government Economic Service in a career spanning 24 years. Robert has a Masters degree in Economics from McMaster University, Canada, and a first-class honours degree from Salford University.
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