Asia Rates: UST yields nearing top of recent range


Higher US yields could disrupt carry trades
Duncan Tan17 Sep 2021
    Photo credit: Unsplash Photo


    US retail Sales for August (0.7%mom, sa) printed stronger than consensus (-0.7%). Consequently, the belly and long-end of the yield curve pushed higher by 3-4bps; 10Y UST yields are now close to the upper end of their 10-12bps tight fluctuation range of recent weeks. If UST yields break out into a higher range, that could disrupt the generally carry-conducive environment of recent weeks, which has been underpinned by rangebound UST yields and DXY.


    CNY rates have bounced higher 5-10bps on some worries of liquidity tightening due to regulatory changes around wealth management products and upcoming Golden Week. Long/receive positioning is likely crowded, and therefore, in the absence of more explicit dovish communications by policymakers, CNY rates may lack near-term impetus for another leg lower. With growth momentum and credit impulse still weakening, we think the policy bias remains tilted towards further easing and CNY rates trajectory is biased stable-to-lower. The recent retracement higher on liquidity worries is an opportunity to scale in longs/receives, as PBOC is likely to pre-empt any episodes of liquidity-tightening.

    Several Asian countries seem to have passed peak infection, with daily new infection counts turning lower. We think that could allow for some rebuilding of local rate hike expectations and term premia, especially in rates markets where pricing is relatively dovish.

    Duncan Tan

    Rates Strategist - Asia
    [email protected]



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