FW: CIMB Fixed Income Navigator 4th Quarter 2017 - Dark Clouds Over The Horizon

 

 

RATIONALE SUMMARY

• MIST bond markets are likely to stay in a volatile range in 4Q17, but the bearish tone may be limited as perceived G3-EM interest rate differentials are unlikely to diverge too significantly given the heightening of fence-sitting rhetoric by the major central banks.
• Furthermore, 4Q17 will likely experience uncertainty in US politics and convolutions in DM monetary policy rhetoric while some EM Asia central banks consider a slightly more dovish pathway. 4Q17 may be a final pit stop where re-directional allocations are considered for 2018.
• We opine 1H18 will likely see QE tapering rhetoric gain further traction from both the US FOMC and ECB. Here, EM Asian bonds yields are expected to creep upwards although potentially dovish emanations from EM Asia could provide some buffer. Furthermore, the withdrawal of stimulus is likely to be gentle, and we opine Yellen's and Kuroda's successors would likely be both dovish with strong links to government.
• 2018 will see some capital "outflows" from EM Asia rather than "capital flight" given that financial markets remain flush with liquidity as central banks avoid a painful withdrawal of monetary stimulus. It appears that the Fed's communication of QE tapering has been successful so far without major dislocations in the fixed income markets.

 

 

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