FxWirePro: Risk-averse class likely to switch over Asian rates avenues amid post-UK referendum and potential dovish Fed stances

The concerns over even after Brexit polls remain the key driver for risk sentiment and hence the price actions across most markets seek safe haven avenues in order to dodge turbulence.

While on the other continent, FOMC is taking a back seat in terms of market impact on Asian rates, which will have to come from an obvious re-pricing higher of Fed hike expectations, in turn on the back of a surprisingly hawkish outcome.

The G10 FX markets have been wary as the Fed, BoJ, BoE, and SNB lined up to hold their monetary policy meetings this week. Even though none expects the US rate hike at tomorrow’s FOMC meeting but the focus will be on the post-FOMC press conference.

The most speculators would be keen on to see how much Brexit risks have dampened Fed Chair Janet Yellen’s optimism.

As a result, the safe-haven flows are likely to keep KTB yields and TGB yields under downward pressure. As stated in our recent post, KTB-UST yield spreads and KTB futures - cash bond yield spreads suggest more investor interest at long-end KTBs, we’re firm to this stance because BoK has

The INR and MYR rate markets have been fairly resilient despite the weakness in FX, upon demand for bonds. This is unlikely to be sustainable should EM sentiment worsen further.

MYR NDIRS fell below IRS, showing no sign of capital outflow worries. This spread has tended to widen when risk aversion was higher. The risk is for reversal in the recent narrowing move.