Goldman Sachs: EM Asia Rates Trade Ideas In A More Dovish World

Goldman Sachs note that “the December FOMC meeting opened the pathway for a more dovish outlook across EM Asia central banks. Our US economists expect the Fed to cut five times this year starting in March. Meanwhile, we expect the PBoC to cut policy rates further in Q1, the BoK, BI and CBC to start cutting policy rates in Q2, the RBI in Q3, and the BSP in Q4.”

• “We initiate a new trade recommendation to go long THB 3Y bonds vs. paying 3Y THOR ND-OIS swaps. THB bond/swap spreads have significantly inverted in the front end. If the BoT turns more dovish, then bonds should catch up with swaps. If the BoT stays neutral, then swaps should retrace some of the recent rally.”
• “We maintain our trade recommendation in long IDR 10Y bonds. We expect Bank Indonesia to cut policy rates by 75bp this year, starting with a 25bp cut in Q2, taking the policy rate to 5.25%. The dominant driver of Indonesian government bonds is likely to be shifts in US yields, which are biased to the downside.”
• “We maintain our trade recommendation to go long CGB 1Y bonds FX-hedged in November. We expect the PBoC to cut policy rates (7-day OMO and 1-year MLF rates) in Q1 and Q3 this year (by 10bp each), and to cut RRR in Q2 and Q4 this year (by 25bp each).”
• “We maintain our trade recommendation to receive SGD 2Y SORA OIS vs. paying a basket of global 2Y rates. The SGD has typically been on an appreciation path against the basket over the past two decades and therefore it is intuitive for SGD rates to trade below the basket-implied yields of the currencies in the SGD NEER. The historical average for the 2Y spread is around -100bp (versus around flat to minus 10bp currently).”