HSBC-Asia-Pacific Rates-Who’s buying the bonds

Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. MCI (P) 017/01/2023 MCI (P) 027/10/2022 Issuer of report: The Hongkong and Shanghai Banking Corporation Limited Singapore Branch View HSBC Global Research at: https://www.research.hsbc.com The 10th edition of the EM Sentiment SurveyClick to viewReturn of the EM bullTHIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA  Pay 10yr HKD-SGS spread: Re-convergence driven by funding rates behaviour  Pay THB1yr1yr NDOIS: Peak rate pricing can go to 2.50%  Pay CNY5yr NDIRS: NPC could stoke growth optimism Since the start of this month, we have had a string of upside CPI surprises across the region from Korea, Taiwan, the Philippines to India. The adequacy of peak rate pricing across the region has come into question, as the disinflation narrative temporarily loses some steam. Earlier rate cut expectations for later in 2023 have been priced out of Korea’s forward curve and should continue to be priced out of India rates given sticky inflation pressures. Thailand’s curve can afford to price in more rate hikes as the government signals upside risks to its GDP growth forecast. The impetus for repricing is no doubt boosted by a similar narrative in the US. We favour paying INR5yr NDOIS and THB1yr1yr NDOIS. In the repricing, we expect high yielders with strong fundamentals to outperform. In this region, that would be Indonesia, with its continued fiscal consolidation and stable core inflation momentum. We maintain our buy trade idea on 10yr IndoGB. Strong domestic demand for bonds is a critical shock absorber. In this month’s key direction, we look at the bond investor demand structure across Asia. What’s happening in HIBOR has caught many investors’ attention, and it feels like a repeat of what happened to SORA back in December. Just like how SORA reversed, HIBOR should as well. We favour paying 10yr HKD-SGS spread. Meanwhile, mainland China’s reopening trades have lost traction but there is reason to be cautiously optimistic going into the National People’s Congress (NPC) on 5 March. We maintain our forecast of higher mainland China rates. 16 February 2023 Pin Ru Tan Head of Asia Pacific Rates Strategy The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch pin.ru.tan@hsbc.com.sg +65 6658 8782 Himanshu Malik, CFA Senior Global Emerging Markets Rates Strategist The Hongkong and Shanghai Banking Corporation Limited himanshu1malik@hsbc.com.hk +852 3941 7006 Hazel Lai Associate The Hongkong and Shanghai Banking Corporation Limited hazel.k.h.lai@hsbc.com.hk +852 2288 7467 Justin Heng Associate The Hongkong and Shanghai Banking Corporation Limited justin.heng@hsbc.com.hk +852 2288 9778 Asia-Pacific Rates Fixed Income Rates Table 1. HSBC Convictions Conviction Index duration 10-year yield Past index return (in USD terms) 14 Feb (%) 1 month 3 months YTD