Asian Bonds Attractiveness Increases Amid US Interest Rate Rise Prospects

Asian bonds have become increasingly attractive to investors due to a technical change in market dynamics, according to JP Morgan's latest research note. The investment bank highlighted that fixed-rate investors have gone underweight in the market over the past month, creating a buying opportunity for those looking to take advantage of relatively cheap valuations. However, the looming US interest rate rise may lead to further selling pressure, with 23 per cent of Asian investors planning to cut their exposure ahead of the Federal Reserve's expected rate hike.

Key Takeaways:

• JP Morgan upgraded its overall technical call on Asian bonds to positive from neutral based on the latest survey results.
• Asian investors' exposure to fixed-rate bonds has decreased, making them attractive to investors, especially after the recent widening of Asian spreads.
• The US Federal Reserve is widely expected to raise its Federal Funds rate from 1 per cent after its policy setting meeting on June 30.
• The two-year Treasury yield jumped 30 basis points in response to the expected rate hike but has since retreated to 2.55 per cent.
• Total second-quarter issuance is expected to be below the first-quarter level of US$2.8 billion, according to JP Morgan analyst Amy Li.

Statistics:

• 23 per cent of Asian investors plan to cut their exposure to bonds ahead of the US interest rate rise.
• US$150 million was the amount of the single Korean issue in the first three weeks of the month, marking the lowest month of issuance since August 2002.
• 30 basis points is the amount of the two-year Treasury yield increase in response to the expected rate hike.

Sources:

• JP Morgan research note, cited in the article
• The article does not provide specific dates or timestamps; however, it is clear that the events are taking place before June 30 and involve the expected US interest-rate rise.