新兴市场曲线反转中的推与拉：进位、曲线和货币.docx

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1、14 August 2019Fixed IncomeRatesGlobal Emerging MarketsAndre de Silva, CFAHead of Global EM Rates ResearchThe Hongkong and Shanghai Banking Corporation Limited andre.de.silvahsbc .hk +852 2822 2217Himanshu Malik, CFAAsia-Pacific Rates StrategistThe Hongkong and Shanghai Banking Corporation Limited hi

2、manshul malikhsbc .hk +852 3941 7006Tom Nash, CFAStrategistHSBC Bank Australia Limitedthomas.nashhsbc .au +61 2 9084 2433Shubham SharmaAssociateBangaloreAsiamoney Brokers Poll 2019Voting opens 3rd June - 16th AugustIf you value our service and insight, please voteClick here to voteJ卜 HSBCGlobal Rese

3、archTHIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA (THE PRC) (EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Push and pull in EM curve inversionCarry, curve and currencyYield curve inversion is spreading from the US to EM. .with EM bond markets being pulled by

4、opposing forces but providing a raft of opportunities for investorsWe have switched our preference to local bonds from hard bonds, and see Russia, South Africa and Mexico local government bonds as having the largest potential for gainsThe inversion of the US Treasury yield curve is grabbing much att

5、ention, given it potentially signals a US recession with spreads at levels last seen just before the 2008 Global Financial Crisis (GFC). However, the EM bond yield curve slope, which in aggregate moves in tandem with the US curve, has been slow to flatten. We explain the key push factors, like a det

6、eriorating economic environment and credit quality concerns, and the pull factors, such as a monetary easing bias. Subject to bouts of risk aversion, such as escalating US-China trade tensions or even Argentina (although we view contagion to EM as being limited), there are key opportunities for inve

7、stors.Currency: As curve inversion spreads further into EM, we increasingly favour EM local government bonds over hard currency bonds as even if theres risk aversion the carry cushion is more than sufficient and valuations are generous. We favour South Africa (long 15yr SAGBs), Indonesia (long 10yr

8、IndoGBs), Mexico (long 10yr Mbonos), Brazil (long 10yr BNTNF), India (long 10yr Gsecs) and Russia (long 5yr OFZs). We also expect EM swaps to outperform local EM bonds as swaps are typically more sensitive to US rates. Sticking to currencies, we also take note of the breach of 7.00 in the RMB and fi

9、nd that local bonds in Turkey, South Africa and Indonesia are most sensitive to the RMB but add that outflows from China is the key factor to watch for any EM impact.Carry: We still see ample room to chase the carry and favour duration extension, given EM bonds are attractive thanks to their high re

10、al yields and prospects of large capital gains as central banks from Turkey to India slash rates. In particular, our model shows Russia, South Africa and Mexico local government bonds have the largest potential for capital gains. Falling funding costs in major markets are also likely to boost foreig

11、n demand for EM bonds.Curve: When looking at EM curves, we focus especially on Brazil and South Africa where the 10yr-3m curve spread has displayed a low correlation with the US curve and, as such, the local yield curve in both markets has turned relatively steeper with respect to their peers. Howev

12、er, we think this will change, given the risk-reward characteristics in both markets and the curves should flatten.Issuer of report: The Hongkong and ShanghaiDisclosures & DisclaimerBanking Corporation LimitedThis report must be read with the disclosures and the analyst certifications inthe Disclosu

13、re appendix, and with the Disclaimer, which forms part of it. View hsbc Global Research at： s :/ research. hsbc. comWeighing the risk rewardsUS Treasury yields would need to rise by 80bp to eradicate the carry with EM local currency bondsTo analyse the risk rewards for positioning in EM local bonds

14、and hard currency bonds, we compute the sensitivity of average yields of the EM local bond index (GBI EM global Diversified) and the EM hard currency bond index (EMBI global diversified) to external factors like US Treasury yields, size of the Feds balance sheet, and the US dollar index. We found th

15、at 1Oyr US Treasury yields will need to increase by about 55bp to break even or completely dissipate the 12-month carry in EM hard currency/external bonds. The threshold for local bonds is relatively higher and 1Oyr US Treasury yields will need to increase by 80bp to completely offset the carry adva

16、ntage.Unsurprisingly, EM external bond yields were found to have a low sensitivity to changes in the US dollar index, but we found a relatively greater sensitivity of EM external bond yields to changes in the size of the Feds balance sheet. As such, a shift from quantitative tightening to possibly q

17、uantitative easing could provide support in favour of external bonds; however, in our view, the valuations in external bonds have turned quite expensive. Our sensitivity analysis also revealed that average EM local bond yields could fall by as much as 12bp if there was a 10% expansion in the Feds ba

18、lance sheet and another 9bp with a 1% decline in the US dollar index.Our strongest conviction in EM low yielders is to reach for duration in ChinaTrade opportunities in EM low yieldersLocal rates in low-yielding markets have been declining, led by the gravitational pull of lower G3 yields (Page 9, F

19、igure 10) and also because the economic outlook in some of these markets is becoming even more challenging with their high exposure to the global trade cycle. Our strongest conviction in EM low yielders is to reach for duration in China. Even though local rates have reached a new bottom in many of t

20、hese markets, we still see many relative value opportunities (pay SGD-USD 5yr IRS, receive HUF5yr5yr IRS vs EUR), curve trades (KRW10- 1yr IRS flattener, PLN5-2yr IRS steepener vs EUR), outright trades at the front-end (receive THB1yr1yr IRS), as well as long-end of the curve (receive CNY5yr ND IRS,

21、 long 30yr CGBs).Unlike other EM low yielders, China bonds have lagged the global bond rally and we continue to recommend a long position in CNY local rates to play catch-up with the recent fall in global rates (see China Rates: The laggard catches up). We also prefer to position for a compression o

22、f long -dated swap rates in Hungary against EUR equivalents (receive HUF5yr5yr vs EUR), given the combination of negative growth factors, relative steepness and positive carry. In contrast, we prefer to pay SGD5yr swaps vs US equivalent. Granted that there is a high correlation between these two mar

23、kets, but a beta sensitivity of lower than unity means that SGD swap should underperform with falling US rates. More crucially, with prospects of a lower SGD NEER, there is also likely to be more upward pressure on SGD swaps. Elsewhere, we also like to position for dislocated risk premiums at the fr

24、ont-end of the swap curves in Thailand (receive THB1yr1yr IRS). In Thailand, the spread between THB1yr1yr and 1yr rates could turn negative in an easing cycle, especially following the latest surprise cut by the Bank of Thailand (BoT).Curves: EM curves too steepNormally, the EM local yield slope mov

25、es with US Treasuries, but this year it has decoupled and largely remained unchanged. .highlighting ample risk premium is still embedded in EM local bonds and providing select opportunitiesWe see an attractive yield pick-up in Brazil and South Africa for risk- averse investorsWhy so steep?The EM loc

26、al yield slope has decoupled from the US Treasury yield curveDespite a sharp inversion of the US Treasury yield curve (10-year-3 month T-bill), we note that the average EM local yield slope - which generally moves in tandem with the US Treasury curve - has decoupled since December 2018 (Figure 11).

27、The EM local yield curve has largely remained unchanged during the first seven months of 2019, highlighting ample risk premium is still embedded in EM local bonds. Moreover, EM swap rates have outperformed local bonds on a year-to-date basis. In fact, numerous EM swap curves (1-5s), which are initia

28、lly more sensitive to a monetary policy reaction function than bonds, have already inverted, such as MXN THE (-82bp), CZK IRS (-62bp), KRW ND IRS (-22bp), INR ND OIS (-19bp), SGD IRS (-8bp) and PLN IRS (-3bp), while local bond yield curves within EM high yielders are still relatively steep, except i

29、n Turkey, Mexico, and to a certain degree Malaysia and Russia (Figure 12). Furthermore, amid looming fears of a global economic slowdown, prospects of further easing by major central banks and loosening dollar funding conditions are likely to provide more scope for easing by EM central banks. Howeve

30、r, domestic macro fundamentals cannot be neglected completely.For instance, in Brazil, the risk premium in fixed income securities is experiencing a regime shift against the backdrop of positive structural reforms and benign inflation. We also note that theFigure 12. Local yield curve is still steep

31、 in South Africa, Brazil, Indonesia, and IndiaFigure 12. Local yield curve is still steep in South Africa, Brazil, Indonesia, and IndiaAug-91 Aug-95 Aug-99 Aug-03 Aug-07 Aug-11 Aug-15 Aug-19US 10yr-3m Treasury curve EM local govt curve*Figure 11. Yield curve inversion in the US Treasury yield curve;

32、 EM local bond curves yet to follow on aggregateooooooooooo o o o o o o o o7 6 5 4 3 2 1 (2aq) 3/unop-a-A -so- EEAOL-300BRL MXN ZAR INR IDR MYR PHP500 0-500-1,000-1,500-2,000TRY RUBSource: Refinitiv Datastream, HSBCSource: Bloomberg, Refinitiv Datastream, HSBC. ,Based on average spread between 10- a

33、nd 2-year local government bond yields in India, Indonesia, Brazil, Mexico, Russia, South Africa and Turkey.risk premium has compressed significantly since the start of 2019; however, it is still at a higher level compared with EM peers. The key question still remains whether the current low inflati

34、on period is temporary and it could again overshoot 10-year mean levels, if fiscal problems are not resolved. Notably, real public spending in Brazil has come down and the likelihood of the social security reform passing is high; in such a scenario, a lower level of inflation could become the norm r

35、ather than the exception. We foresee more room for compression in the risk premium in local yields (LatAm Rates Strategy).Brazil, South Africa and India all have idiosyncratic reasons for the steepening in their respective yield curve“ Local yield curves in Brazil and South Africa are least correlat

36、ed with the US curveIn South Africa, local rates have lagged global peers in the year-to-date rally and the curve has steepened further, given further credit concerns and a rate cut from the South African Reserve Bank (SARB). However, despite weaker macro fundamentals and structural issues, a positi

37、ve external environment, high real yields and sizeable carry should support local rates, in our view (CEEMEA Rates). We would also like to highlight that the Brazil and South Africa 10yr-3m curve spread has displayed a low correlation with the US curve (Figure 13) and, as such, local yield curves in

38、 both markets have turned relatively steeper with respect to their peers. However, the local curves in both markets are expected to flatten with growing macro headwinds and attractive risk-reward characteristics of local bonds. In India, uncertainty around the issuance of external sovereign bonds, a

39、nd concerns around a possible fiscal stimulus have led to a steepening of the local government bond (Gsec) yield curve. Nonetheless, this is likely to be overshadowed by a protracted slowdown, easing monetary policy bias and flush liquidity, pushing local government bond (Gsec) yields further lower

40、(Asia-Pac Rates).Opportunities for risk-averse investorsTheres an attractive yield pick-up in Brazil and South Africa for risk-averse investorsTheres an attractive yield pick-up in Brazil and South Africa for risk-averse investorsWhile the 10yr-3m yield curve is an appropriate indicator of the carry

41、 cushion for domestic investors whose funding cost is based on local money markets, we believe it is appropriate to look at the spread between 10yr yields and 3-month FX-implied yields to evaluate the carry cushion for offshore investors. Figure 14 highlights that the 10yr FX-hedged yield adjusted f

42、or US dollarFigure 13. Brazil and South Africa local curve exhibits a low correlation with US curveE9CO.) U3O3O。42300-2.0INRPHP:CZKMXNMYHUF .PLN b。.|DR ZAR、 RUB BRLLthb2.01.51.00.50.0-0.5-1.0-0.50.00.5correlation coefficient (-36m)-1.01.0Figure 14. Theres an attractive yield pick-up in Brazil and So

43、uth Africa for risk-averse investorsdq I pa=dE一 XLEco, I-Source: Bloomberg, HSBC. *ForZAR, implied yields are based on onshore forwards.Source: Bloomberg, HSBC. *Calculated using 10yr-3m rates differential between EM economy and the US.funding cost (i.e., 3m US LIBOR) is still significant in Brazil

44、and South Africa and both curves are quite steep (1Oyr yields vs 3-month FX-implied yields). Even though this curve has been flattening in Brazil since the beginning of the year, it has actually modestly steepened in South Africa, reflecting pricing in of the risk premium at the long-end of the curv

45、e. In South Africa, the long-end has been reflecting a higher risk premium due to structural credit concerns surrounding Eskom and the potential fiscal fallout. In contrast, the curve (1 Oyr yields vs 3-month FX implied yields) has inverted in most other EM economies, especially in India and Mexico

46、(Figure 14). Therefore, positioning in these high yielders appears attractive only with an open FX exposure.Currency: FX hedging considerations for bondsWe found that Turkey, South Africa and Indonesia are most sensitive to the RMB, and Brazil local bonds are most sensitive to the US dollar index. A

47、ny FX volatility in EM high yielders on the back of high export exposure to China is likely to ripple through local rates marketsWhile the USD-CNY has breached 7.00, watching for any potential capital outflows from China will be key for EM, in our viewDiminishing cushion of FX-hedged yieldsBrazil an

48、d South Africa are attractive for capturing fixed income gains on a FX-hedged basisThe EM local yield curves computed using the 3-month implied yields have flattened year-to- date in tandem with the flattening US Treasury yield curves (see Opportun币es for risk-averse investors, page 72). This basica

49、lly means that the cushion of FX-hedged yields in EM local bonds has somewhat diminished in comparison with the end of 2018 (Figure 15). Yet, 10yr localgovernment bonds in Brazil, South Africa and Hungary still offer a yield pick-up of 230bp, 220bp and 180bp, respectively, above the 3-month US LIBOR after accounting