J.P.Morgan: Rotation from Rates To FX?

J.P.Morgan note that "a general pattern across Asia is the adoption of some sort of duration mitigation strategies by debt management departments or central bank support in markets where duration supply remains heavy. Given the still large issuance need in Indonesia, what stands out vs peers is the lack of a "duration mitigation strategy" and the less explicit BI commitment to support the bond market this year."

• "As of last Friday, governments in EM Asia have sold $116bn of local currency government bonds in 2021. This compares to $56bn of bond sales as of January 2020. We estimate full-year gross bond issuance for the region to be at $1.39tn, similar to 2020's $1.53tn amount, with the decline in issuance mostly attributed to China. EM Asia ex-China issuance this year is expected to be roughly flat vs past year. According to JPM's EM Investor Survey conducted in mid-January, for the first time since June 2019, investors are more positioned in GBI-EM Asian FX than in duration. While both FX and rates have done well post the March 2020 sell-off, investors seem to believe that FX moves have more legs than rates moves in 2021. The last time when investors held a decent sized Asian FX OW both absolutely and relative to Asian rates was in 2017."
• "Foreign investors added China bond holdings in large size ($25bn) in December as signs of TSF credit impulse and CGB yields peaked. Elsewhere, inflows into EM Asia ex-China last month were lackluster. Overall, 2020 was a year of record China bond inflows ($155bn) vs a 4-year low of EM Asia ex-China bond inflows ($3bn)."