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EM STRATEGY Summary - 30 April 2014

Core Content

This document provides an overview of the Emerging Market (EM) Asset Swap (ASW) market dynamics across several regions: Asia, CEEMEA, Latin America (LATAM), Poland, Hungary, South Africa, Czech Republic, Israel, Turkey, Mexico, Brazil, Chile, and Thailand. It highlights the trends in ASW curves, bond yields, and the impact of market inflows/outflows on these markets.

Main Points

Asia

• Portfolio inflows into Asian fixed income markets remain positive, with accelerated inflows into Thailand and Korea.
• Local currency ASW and $ASW have tightened from a month ago, and the curve has flattened across the region.
• Singapore has also seen tightening in ASW and $ASW over the past two weeks.
• Malaysian and Korean bonds continue to offer the best $ASW in the very front end of the curve.

CEEMEA

• CEEMEA ASW curves have continued to tighten in the last week, despite outflows from emerging market local currency funds.
• Hungary has experienced a drastic tightening in the front-end of its local ASW curve, particularly up to the 5-year segment.
• This tightening is attributed to the NBH program that replaced 2-week NBH bills with 2-week deposits and introduced various asset swap facilities.
• The report recommends long positions in HGB 19/A's due to these changes.

Latin America (LATAM)

• Strong inflows into Latin American fixed income markets have abated lately.
• Colombia assets continue to tighten due to inflows following the increase in its weight in GBI-EM global indices, although the curve shape remains largely unchanged.
• Mexico, Brazil, and Chile show little variation in their ASW curves.

Key Information

ASW Curve Trends

• Tightening in ASW curves is observed in CEEMEA and Asia, with Hungary and Malaysia/Korea being notable examples.
• Singapore and Colombia have also seen tightening in their respective $ASW and ASW curves.
• In LATAM, the curve shape has remained unchanged, but inflows are still influencing Colombia's ASW levels.

Asset Swap Levels

• The $ASW levels for various bonds are presented in Table 1, with HGB 5.5 20/12/18 18/A showing the highest $ASW at 161 bp.
• For Poland, the ASW and $ASW levels for different bonds are detailed, showing variations in tightening over time.
• Hungary's HGB 5.5 20/12/18 18/A has a $ASW of 161 bp, and Yield vs 3M FX SWAP has increased to 1.60%.
• In South Africa, SAGB 8.5 13/12/18 R204 has a $ASW of -33 bp, with Yield vs 3M FX SWAP at 1.59%.
• Czech Republic has seen tightening in both ASW and $ASW levels, with CZGB 5.7 25/05/24 58 having a $ASW of 85 bp and Yield vs 3M FX SWAP at 3.18%.
• Israel has tightening trends, with ILGOV 6.25 30/10/26 showing a $ASW of 176 bp and Yield vs 3M FX SWAP at 1.84%.
• Turkey has seen tightening in $ASW levels, with TURKGB 8.3 20/06/18 having a $ASW of 7 bp and Yield vs 3M FX SWAP at -0.29%.

Recommendations

• The report recommends long positions in HGB 19/A's in Hungary due to the tightening in the front-end of the local ASW curve.

Summary of Regional Trends

This document provides a detailed analysis of the ASW market, highlighting the tightening in various regions, the impact of inflows/outflows, and specific recommendations for Hungary. It also includes charts and tables for visual representation and detailed bond data.