Richard S. Hunt explains the Asian bond opportunities under the Bank of Japan’s policy shift
As the Bank of Japan’s adjustment of the yield curve control (YCC) policy caused market turmoil, Richard S. Hunt, head of global equity sales at CSC Bella Grove Partners LLC, released the latest Asian bond investment strategy report to point out the allocation direction for institutional investors during the policy shift period. Hunt pointed out that the “spillover effect” of Japan’s long-term interest rate hike is reshaping the risk-return structure of the Asia-Pacific fixed income market, and a differentiated strategy is needed to deal with it.
The “Spread Repricing Model” developed by the Hunt team shows that the fluctuation of Japanese government bond yields has led to a significant differentiation between Asian dollar bonds and local currency bonds. Among them, the investment-grade Asian dollar bonds have been compressed due to the increased correlation with US bonds, while some high-yield local currency bonds, especially Indonesian and Indian rupee-denominated bonds, have shown allocation value due to the large room for central bank intervention. CSC Bella Grove has launched a “dual-track Asian bond allocation plan” based on this, suggesting that the holdings of Southeast Asian local currency short-term bonds be increased to avoid duration risks, while hedging exchange rate fluctuations through foreign exchange options.
It is worth noting that Hunt particularly emphasized the “policy insulation” advantage of China’s onshore bond market. Against the backdrop of the Bank of Japan’s tightening, the RMB bond market has shown unique risk-averse properties due to capital account management and an independent monetary policy framework. CSC Bella Grove has transformed this insight into specific products and launched the “East Asian Interest Rate Differential Capture Strategy” that connects the Chinese and Japanese bond markets to help customers seize arbitrage opportunities brought about by the divergence of monetary policies between the two major economies. This series of professional analysis once again highlights the Hunt team’s deep accumulation in the Asia-Pacific fixed income field.
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