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Goldman Sachs note that "the initial reactions from the more hawkish than expected FOMC meeting in NJA local markets were SGD outperformance, KRW and IDR underperformance, while the SGD, HKD and THB IRS curves all rose in a bear-steepening manner. The move in KRW IRS rates was relatively muted as the curves have already risen significantly over the past few weeks driven by a more hawkish BoK recently. The sell-off in Indonesian bonds was fairly limited, which we think can be partly explained by the lower levels of foreign holdings in Indonesian government bonds of around 25% currently from the peaks of close to 40% previously. Meanwhile, USD/CNY rose in line with USD/Asia, while China's government bonds saw a fairly muted reaction to the FOMC."

  • "What to look for next? For NJA local markets, we think one of the next key question is: "How long will the rates re-pricing last and to what extent?" If it is a short-lived re-pricing, then beyond the knee-jerk reaction, EM FX could potentially recover, as long as core rates stabilize and synchronized global growth continues. In this scenario, the likes of KRW, MYR and SGD can outperform. However, if the U.S. rates re-pricing re-tests the previous highs (1.75% on U.S. 10Y), then EM FX (and indeed NJA FX) is likely to remain under pressure. In this scenario, we think IDR will be one of the most vulnerable markets. Our sensitivity analysis shows that higher U.S. yields is, in most instances, bearish for Indonesia bonds. We further analyzed that the driver of U.S. yields be it Fed re-pricing or growth upgrades also matter for IDR bonds and FX. But in this instance, given that the move higher in rates is driven by a more hawkish Fed than growth, then the outcome is likely to be bearish for IDR macro markets. Of the low-yield markets, USD/THB screens as one of the more sensitive pairs to U.S. yields. Most of our trades are relative value trades and by design less correlated to global beta, except for JPY/KRW, which in a sharp risk-off scenario will hurt the trade."