KUALA LUMPUR, Aug 22 — The sensitivity of emerging Asian bonds to US Treasuries is climbing back towards its 2024 peak, with Malaysian debt standing to benefit the most.
According to Bloomberg, the 30-day correlation between EM Asia bonds and 10-year US yields has risen to approximately 0.29, up from zero at the end of June, nearing a seven-month high.
Malaysian bonds have a correlation of 0.53, the highest in the region.
“The current macro settings with expectations of Fed rate cuts but no major economic downturn are conducive to foreign demand for local debt including ringgit bonds,” said Maybank Securities Pte fixed-income research head Winson Phoon.
He added that there has been strong buying of Malaysian bonds in July and August.
Thailand and South Korea also show high exposure to Treasuries, with correlations of 0.45 and 0.35, respectively.
The increased correlation makes regional bonds more vulnerable to higher US yields and a rebound in the dollar.
“The bigger risk lies in a potential rebound in the dollar, as current dollar weakness has provided a huge tailwind for EM assets so far,” said Singapore’s DBS Bank fixed-income strategist Eugene Leow.
The Bloomberg Dollar Spot Index ended a three-day decline on Wednesday as traders awaited Fed Chair Jerome Powell’s speech at Jackson Hole for insights on the central bank’s policy outlook.