Rajeev De Mello, Head of Asian Fixed Income
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For professional investors and advisers only. This document is not suitable for retail clients.
Central banks around the world have been easing monetary policy in an attempt to jumpstart slowing local, as well as global, growth. South Korea proved to be the latest country to cut interest rates as the Bank of Korea (BoK) cut its key rate by 25 basis points (bps), from 3% to 2.75%. As the second cut in the space of four months, what does the easing mean for fixed income markets in Asia?
The expected rate cut by the BoK initially proved positive for Korea Treasury Bond (KTB) yields. However, the upticks in yields associated with this profit-taking are limited and in our view expectations for another rate cut have been reflected in current prices. Uncertainty remains over whether another key rate cut will be forthcoming before the end of the year. Therefore, we see the Korean bond market trading within a narrow range over the short-term.
The BoK also cut its GDP growth forecasts for 2012 – from 3% to 2.4% – and for 2013 from 3.8% to 3.2%. This systematic slowing reflects the deteriorating global environment upon which the trade-dependent economy depends, as well as a slump in domestic consumption.
We maintain our view that given the current uncertainty, corporate bonds will continue to fluctuate in a narrow range. Asia remains a relative bright spot in the gloomy global outlook and we believe the bond market will be supported by companies’ strong cashflows and the region’s long-term growth potential. If more global easing in the next few months does take place, which seems likely, we believe the moves will benefit Asian currencies as they will likely be supported by the region’s positive yield carry.
Important Information:
For professional investors and advisers only. This document is not suitable for retail clients.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Schroders has expressed its own views and opinions in this document and these may change. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Services Authority.
Source: ETFWorld – Schroders Quickview
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