Long bonds in Southeast Asia are set to outperform shorter-dated notes as policy makers turn more hawkish, turning the curve flattening trade into a hot bet.
Bond curves in Malaysia, Thailand, Indonesia, and the Philippines are primed for further flattening as front-end yields rise with rate hike expectations while the longer-end, which remains steep relative to many markets outside the region, eases.
While the Treasury two- and 10-year curve inverted this week, the region’s sovereign curves are still steep, even relative to historical averages. Bond curves in other parts of the world have flattened more aggressively due to early rate hikes, leaving Southeast Asia to play catch up -- and presenting investors with a trading opportunity.
