Fixed Income

Investment Insights by our experts and thought leaders

Sifting Through The Ruble: Global Commodity Currencies

Our Nikko Asset Management fixed income experts, led by Simon Down, discuss the prospects for commodity currencies.

Asian Fixed Income Monthly Outlook - September 2015

US Treasury (UST) yield curve, along with other asset classes, experienced volatile swings in August. The Chinese central bank’s announcement that it would modify the approach to setting the CNY fixing midpoint effectively weakened the currency against the USD.

Zooming in on the Pacific Decade: China's Devaluation

A concentrated, stock-picking approach is the best way to serve a long-term investor's goal of capital appreciation

Fintech Evolution in China

The internet revolution is coming to the financial sector, addressing inefficiencies in current system and business models. In China’s case we are witnessing a combination of financial liberalisation with an internet revolution in the financial sector.

US rate rises unlikely to have significant impact on 10-year Treasuries

Even though the current term premium on US Treasuries seems too low, it is unlikely to rise significantly unless offshore bond yields start to rise.

Why did China devalue the renminbi?

While RMB weakness will likely persist for a few months, we don't expect the currency to devalue more than 10% versus USD and we maintain our confidence that the currency will be included into the IMF SDR basket in a year from now.

Asian Fixed Income Monthly Outlook - August 2015

US Treasury (UST) yield curve bull flattened in July, as yields of short-dated USTs rose on Federal Reserve (Fed) Chairperson Janet Yellen’s statement that interest rates are likely to rise later this year while the yields of longer-dated USTs fell on the weakening inflation outlook.

Market Commentary – Asia Corporate High Yield Market Update

Spreads in Asian corporate high yields (HYs) have been impacted by recent market volatilities. Risk aversion ruled the market after the surprise change in RMB fixing rule which led to concerns on the weakening growth in China and its impact on the emerging markets (EM) countries.

After the China devaluation, Asia currencies and equities broke down – in effect, catching down to some degree to Latin America, Europe, Middle East and Africa, which had already been significant underperformers.

Asian Fixed Income Monthly Outlook - July 2015

Yields of US Treasuries (USTs) bear steepened in June, with developments in Europe dominating sentiment. The 10-year Treasury eventually ended the month at 2.35%, 23 basis points (bps) higher compared to end May levels.

Views on the China equity market selloff – from an Asian Fixed Income perspective

The sharp equity market correction in recent weeks after a very strong run over the past year will not have a crisis-level impact to the broader economy.

The Implications of the RMB Inclusion in the IMF SDR

The IMF has been supportive of China's attempt to be included, but has not indicated that it recommends it. Furthermore, there is a risk that most of these reforms are too new for the IMF to judge whether they are effective or sustainable.

Nikko AM Asia views the recent market corrections in Chinese equities, particularly in the onshore markets, as healthy given the sharp advance on account of a frenzied retail market intoxicated by the relatively cheap margin financing.

Bond market sell-off may look like 2003, but it shouldn't be as bad for US Treasuries

Although the recent bond market sell-off may remind the market of 2003, we don’t believe US bonds will be as badly affected. By comparing the worst US bond sell-offs since 2003, we estimate that the 10-year US Treasury yield could hit a high of 2.8-3.2% by October.

Asian Fixed Income Monthly Outlook - June 2015

Yields of US Treasuries (USTs) rallied in May, with the 2-year and 10-year yields up 4 and 9 basis points (bps) respectively as compared to end-April levels.

Notwithstanding a brief rebound in yen strength in mid-June, the Japanese currency has continued its weakening trend against the U.S. dollar, with the yen recently dropping to its lowest level in over 12 years.

Will US rate hikes weigh on risk assets?

Real yields and inflation expectations currently suggest exceptionally low growth and low inflation far out into the future.

Does the price action of bunds signal an end to ultra low rates?

We do not expect the recent steepening of the bund yield curve to be the beginning of a sustained new trend. Moreover, Eurozone and German economic data, albeit improving, are not sufficient to support the higher bund yields on a sustained basis.

Did Asia's Central Banks Engage in the Global Currency War?

Since the Fed starting hinting at the normalization of interest rates a year ago, Asian central banks' foreign reserve accumulations - except for India and Hong Kong - have either incurred substantial losses or remained flat.

Recent yield rises don’t necessarily signal the end of bond market rally

With many markets having rallied from major support levels when they were in highly oversold positions, we believe that bond markets should stabilise or rally from current levels.

Asian Fixed Income Monthly Outlook - May 2015

Yields of the US Treasuries (USTs) traded in a relatively tight range, eventually ending higher at month-end. At 2.03%, the 10-year point on the UST curve was up 11 basis points (bps) compared to the level at end-March.

The Japanese stock market has continued to rise, punctuated by the Nikkei 225 recently closing above 20,000 points for the first time in 15 years.

Low oil prices: Saudi Arabia can afford to bide its time

Oil-producing countries have seen the largest drop in their foreign exchange (FX) holdings over the last year. In our view, Saudi Arabia can afford to handle oil prices at their current level for some time but ...

Asian Fixed Income Monthly Outlook - April 2015

Prices of the US Treasuries (USTs) ended March higher, with 2-year and 10-year USTs yields closing the month 6 basis points (bps) and 7bps lower respectively.

With the dollar/yen hovering around JPY120 to the U.S. dollar, Japanese stocks have recently been showing extraordinary strength, marked by the Nikkei 225 breaching the JPY20,000 level on April 10 for the first time in roughly 15 years – a level that it retook on 22 April and has stayed close to ever since.

Recent Defaults by Chinese Issuers

Defaults from Chinese companies have been on the headlines recently. First, the default of property developer Kaisa Group last Monday (20 April 2015) was expected given the challenges in the ongoing debt restructuring.

US Federal Reserve faces headwinds as it starts to raise rates

Interest rate and foreign exchange volatility has begun to increase as the market anticipates the time when the US Federal Reserve will start to reduce monetary accommodation and raise interest rates.

Regional Equity and Asset Class Forecasts

Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.

Asian Fixed Income Monthly Outlook - March 2015

Prices of the US Treasuries (USTs) weakened in February, with yields of the 10-year USTs higher by about 35 basis points (bps).

Will deflation or inflation be the global focus for 2015?

In 2015, markets will be looking for any pick up in European and Japanese inflation as a result of their QE programmes. With growth picking up, we may start to see signs of a rise in US inflation.

Australia: Japanese and European QE likely to subdue bond yields and increase currency market tensions in 2015

The key theme of the past few years has been quantitative easing. Although the US has come to the end of its version of this experiment, QE programmes have begun or are about to begin in Japan and Europe.

Asian Fixed Income Monthly Outlook - February 2015

US Treasuries (USTs) rallied in January, with the 10-year UST yield ending the month at 1.64% which was 53 basis points (bps) lower than end-December.

According to the 2014 Labour Survey recently released by Japan’s Ministry of Health, Labour and Welfare, total cash earnings – i.e., the total of contractual cash earnings (such as fixed monthly salaries) and other special cash earnings (such as bonuses) – of Japanese workers rose 0.8% in 2014, the first such rise in four years.

What will happen to US Treasuries if Japanese government bond yields go to zero?

In a pre-GFC and pre-QE world, zero or negative interest rates on a German, Japanese or US 10-year bond would have been considered highly implausible. However...

Implications of the ECB's quantitative easing program for interest rates and currencies

ECB's QE: The major question is, will this program work given the European model of debt creation is via the banking system and not the bond markets?

Asian Fixed Income Monthly Outlook - January 2015

US Treasuries (UST) had a volatile trading month in December and ended the periodwith the 5- and 10-year UST yields 17 basis points (bps) and 0.7bps higher compared to November.

Asian Credit Outlook 2015

Asia credit recovered strongly in 2014. Long duration bonds gained as the intermediates and long-end US Treasury (UST) yields fell in response to disappointing growth outcomes elsewhere in the world even as the shortend of the curve began adjusting to rate hike expectation in the US.

Market Commentary – Offshore RMB (CNH) Market Outlook 2015

The overall CNH bond market gained 3.02% in local terms in 2014. Both sovereigns and credits delivered positive returns of 2.6% and 3.14%, respectively.

Through the careful examination of historical data, it is possible to empirically affirm the existence of several anomalies in the stock market, even though there is not always a clear theory or explanation as to why they exist.

As of the end of September 2014, Japanese household financial assets totalled ¥1,654 trillion* (approx. US$15 trillion), representing an on-year increase of ¥44 trillion (approx. US$401 billion), or 2.7%, and surpassing the previous high of ¥1,645 trillion (approx. US$16 trillion**) recorded at the end of June 2014.

Asian Fixed Income Monthly Outlook - December 2014

US Treasuries (UST) ended the month stronger, trading within a relatively tight range for most of November. At month-end, 10-year UST was yielding at 2.16%, 18 basis points (bps) lower than October.

Active management of credit more effective over the longer term than a target-seeking strategy

As we move further away from the turbulent period between 2007 and 2009, interest in credit has increased rapidly as investors globally search for extra return in a low yield environment.

Rate cuts down under?

If the RBA does cut interest rates, it is likely that they will make more than one cut, so we could see Australia's official cash rate at 2.00% by the second quarter of 2015.

The Asian Credit Market

Growth continues to be a strong theme in Asia making the case for investing in the region a compelling one. The Asia ex-Japan (AxJ) region has more than doubled its share of the global economy since the Asian financial crisis.

Green Bonds Go Mainstream

2014 has become a landmark year for green bonds, having become one of the few sustainable investment instruments to reach a suitable scale and poised to enter the mainstream for global institutional investors.

Asian Fixed Income Monthly Outlook - November 2014

US Treasuries (UST) rallied in October – a month that saw dramatic movements across asset classes. The US Federal Reserve (Fed) ended its bond-buying program following the October policy meeting.

Australian Fixed Income: Credit Commentary - October 2014

Physical credit spreads have remained at reasonably tight levels due to the ongoing search for yield — although global uncertainty in the Middle East, fears about Ebola, and re-emerging concerns about Europe have generated negative sentiment.

Australian Fixed Income: Market Commentary - October 2014

The Australian economy seems to be struggling to achieve traction as the mining boom transitions from a capital expenditure phase to a shipment phase.

No sovereign bond bubble but perhaps a new conundrum

Prior to the global financial crisis, nearly $17 trillion of developed nation bonds were rated AAA. Now there are less than $2 trillion. Not only has supply been restricted, but also diversity, with the number of AAA rated countries falling from 15 to 9.

Asian Fixed Income Monthly Outlook - October 2014

In its September Federal Open Market Committee (FOMC) statement, the US Federal Reserve (Fed) renewed its pledge to keep interest rates near zero for a considerable time after its quantitative easing (QE) program ends in October.