Deutsche Bank-Asia Macro Strategy Notes CCS monitor Pick-up offered by r...-117799629

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 17/09/2025 03:59:29 GMTDistributed on: 17/09/2025 03:59:29 GMT17 September 2025Deutsche BankResearch Asia Fixed Income Asia Macro Strategy Notes Date CCS monitor: Pick-up offered by reverse asset swaps to keep compressingWe have been highlighting over the past month how USD assets swapped back to local currency - let's call it the reverse asset swap - has been yielding more than local government bonds in markets like Thailand and China. Domestic asset managers in both THB and CNH markets (see here, here and here) have had an opportunity to enhance their local currency returns by investing in USTs (or other DM bonds) and swapping them back into local currency.This past week, however, we have seen the pick-up in yield from these reverse ASWs compress significantly in both THB and CNH markets, driven by distinct underlying factors.nIn Thailand, the 20Y ThaiGB has sold off by 35bps over the past week; the 5Y ThaiGB more like 15bp. Interestingly, foreign investors have been net buyers - though in small volumes - during this period (Figure 1). We would attribute the sell-off to a rotation by onshore asset managers away from ThaiGBs to the more attractive reverse ASWs to increase THB returns. While the pick-up offered by reverse ASW has compressed as a result; but 10Y UST swapped into THB, for example, is still offering an all-in yield of 1.80%, which is 31bps higher than 10Y ThaiGB. Note that this pick-up is more attractive for some European government yields (swapped into THB), so there remains an incentive for Thai domestic investors to continue this rotation.nIn the CNH market, the compression in the pick-up offered by the reverse ASW has been mostly due to a rally in CNH CCS. This rally is largely fuelled by an increase in dim sum bond issuances from non-Chinese entities and the corresponding flows to swap CNH proceeds into USD, i.e., receive CNH CCS (Figure 2). We previously highlighted that a significant amount of dim sum bonds were scheduled to mature in September. The strong demand from existing dim sum bond investors to roll their investments, combined with a subdued supply of dim sum bonds from Chinese issuers, is effectively attracting non-Chinese entities to issue dim sum bonds (and subsequently receive CNH CCS). Note that non-Chinese issuers are still able to realize approximately 30 bps in financing cost savings by issuing dim sum bonds and swapping them into USD, compared with directly issuing USD bonds.Bryant XuStrategist+65-6423 5558Jalaj SinghResearch AssociateDeutsche Bank AG/SingaporeIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.17 September 2025Asia Macro Strategy NotesPage 2Deutsche Bank AG/SingaporeFigure 1: Foreign investors have net bought ThaiGBs during the sell-off (150) (100) (50) - 50 100 150 200 250 300 3501.701.