EM 10Y Real Yields: Radical Changes for CEE, Chile and Thailand

• As inflation has been constantly surprising positively in the EM market, particularly in the CEEMEA and Latam regions, 10Y real yields have been falling drastically in the past year (to the exception of Brazil, Malaysia and China PP-adjusted).
• We previously saw that the dramatic plunge in 10Y real yield in the CEE region (including Turkey) has been weighing on CEE currencies.
• For instance, TRY has been the worst performing currency among the EM world, down nearly 26% against the US Dollar since the beginning of January.
  • The surge in inflation from 17.5% to 78.6% in the past year pushed real yields down from -0.5 to nearly -60%.
• We also find Czech and Poland at the bottom of the League, which both stand among the weakest performers in EM FX.
• Price caps in Hungary have kept the inflation rate below its peers, but the implied inflation should also be 3ppt higher in Hungary, putting Hungary 10Y real yield among the lowest in EM.
• At the top, we still find South Africa and Indonesia, where real rates have fallen but are still currently ‘largely’ positive at 3.7% and 3%, respectively.
• In Asia, we also saw a significant change real yields in Thailand, where the 10Y real yield fell from +0.3% to -5.2% as inflation has been accelerating sharply this year.

Source: Bloomberg/MNI