8 February 2022
THIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA
EM Rates
Fixed Income
Rates
EM need not tumble after Fed's "humble"
Global Emerging Markets

Global markets have been rocked after the Fed said it will be
“humble and nimble” but we stay bullish on EM local rates

Our most favoured markets are South Africa, China and
Korea but our preference for Russia is challenged by distinct
geopolitical risk; remain bearish on India and Turkey

We show why we like local EM debt vs external, expect more
tightening in asset swap spreads, and how to play the curve
It’s still all about EM local debt
The global backdrop for EM fixed income has materially changed. Expectations for a
much faster pace of policy tightening by the Fed, geopolitical tensions, and a sharp rise
in crude oil prices have clouded the investing outlook. Still, we maintain our selectively
bullish stance on EM local debt. Many EMs are already at an advanced stage of a
hiking cycle and local debt markets are becoming less reliant on foreign capital making
them more resilient. Our most favoured markets are South Africa, China and Korea.
We also like Russia local bonds even though geopolitics may continue to weigh in the
near term. We also think that a further rise in yields should be seen as an opportunity to
turn constructive on local debt in some other markets, especially where tightening
cycles are in a late stage (Brazil) or implied tightening in forwards is too aggressive
(Mexico). By contrast, we remain bearish on local rates in India and Turkey.
Cash bonds versus swaps
Relative to local bond yields, swap markets are typically more sensitive to external factors
including gyrations in US rates. And while EM swaps already imply significant tightening
in forwards, we believe that a tightening in asset-swap spreads (i.e. underperformance of
EM swaps vs cash bonds) is likely to continue at least into the run up to the next FOMC
meeting as swaps continue to price-in additional volatility risk premium. In our view, this
provides opportunity to position for tighter asset-swap spreads in markets such as South
Africa, where spreads are sizeable and monetary policy tightening is in the early stages.
André de Silva, CFA
Head of Global EM Rates Research
The Hongkong and Shanghai Banking Corporation Limited
andre.de.silva@hsbc.com.hk
+852 2822 2217
Pin Ru Tan
Asia-Pacific Rates Strategist
The Hongkong and Shanghai Banking Corporation
Limited, Singapore Branch
pin.ru.tan@hsbc.com.sg
+65 6658 8782
Radoslaw Bodys
Head of CEEMEA Rates Strategy
HSBC Bank plc
radoslaw.bodys@hsbc.com
+44 20 7991 5882
Mario Robles
Head of LatAm Rates Strategy
HSBC Securities (USA) Inc.
mario.robles@us.hsbc.com
+1 212 525 4119
Himanshu Malik, CFA
Asia-Pacific Rates Strategist
The Hongkong and Shanghai Banking Corporation Limited
himanshu1malik@hsbc.com.hk
+852 3941 7006
Melissa McCallum
Strategist
HSBC Bank plc
melissa.mccallum@hsbc.com
+44 20 7991 5919
Grace ZJ Wang
Associate, Asia-Pacific Rates Strategy
The Hongkong and Shanghai Banking Corporation Limited
grace.z.j.wang@hsbc.com.hk
+852 2288 1602
Hazel Lai
Associate
The Hongkong and Shanghai Banking Corporation Limited
hazel.k.h.lai@hsbc.com.hk
+852 2288 7467
How to play the curve
Curve steepeners are offering attractive carry across many EMs, given front-end
rates are pricing in sizeable hikes in most markets (though not in China). However,
expressing a steepener view in many EMs is challenging against the backdrop of a
flattening US rates curve. They are attractive only in markets that are in advanced
stages of tightening (Brazil 2s5s DI steepener; Korea 1Y1Y-5Y5Y steepener; Chile
2s10s Camara steepener) or that are in the middle of a hike cycle with other factors
arguing for a steeper curve (Mexico 5s10s TIIE steepener).
Disclosures & Disclaimer
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: The Hongkong and Shanghai
Banking Corporation Limited
View HSBC Global Research at:
https://www.research.hsbc.com
Fixed Income ● Rates
8 February 2022
Contents
Local bonds barometer
3
EM low yielders
23
Top Trades
5
Mainland China
23
Poland
24
Clients’ questions on EM
6
Malaysia
25
EM Rates
7
Thailand
26
A tumble after Fed stays ‘humble
and nimble’
Korea
27
8
Cash bonds versus swaps
9
Andean markets
28
Colombia
28
Chile
29
Frontier markets
30
Argentina
30
Sri Lanka
31
Recent EM publications
32
Disclosure appendix
37
Disclaimer
42
Distinct curve dynamics
10
EM hard debt
11
Stars not aligned for EM EXD
11
Lower EM EXD issuance in 2022 12
EM FX
13
Eye of the tiger
13
EM Economics
14
Darkest before dawn
14
EM ESG Sovereigns
15
ASEAN sustainable finance is set to
accelerate
15
2
EM high yielders
16
Mexico
16
Brazil
17
Russia
18
South Africa
19
India
20
Indonesia
21
Philippines
22
Fixed Income ● Rates
8 February 2022
Local bonds barometer
Table 1. Emerging Markets Local Currency Bonds Outlook (1Q 2022)
Brazil
Mexico
Neutral
Neutral
10-year nominal yield (%)
11.49
7.62
6.45
Correlation to UST*
0.27
0.55
-0.06
View on local bonds
Indonesia
Mildly
Bullish
India‡
Mainland China
Mildly
Bullish
Malaysia
Mildly
Bearish
6.87
2.70
-0.12
0.09
Bearish
Russia
South Africa‡
Bullish
Bullish
3.68
9.41
9.73
0.08
0.15
0.02
Trend in foreign flows^
Monetary policy bias†
FX outlook†
*Correlation computed using daily yield data over the past three months
^Trend in foreign flows is based on the latest 4 weeks/monthly flows for the market
†Based on HSBC FX Research Emerging Markets FX Roadmap, Global policy rates and HSBC Economics forecasts for end 1Q22
‡Data include government + corporate flows.
Source: HSBC forecasts
Positioning &
sensitivity
Macro variables
External factors
Table 2. Emerging Markets Local Bonds Value Matrix
Brazil
Mexico
Indonesia
India**
Mainland
China
Malaysia
Russia
South
Africa**
Turkey
FX adequacy ratio*
1.6
1.3
1.3
2.0
0.8
1.2
3.6
0.8
0.8
FX reserves (USDbn)
330.9
180.8
132.4
566.1
3,250.2
107.2
460.3
43.1
76.9
Short-term debt (% of reserves)
19.4
25.0
32.7
17.6
36.8
87.3
9.6
50.5
148.0
Import coverage ratio (months)
18.1
4.7
8.9
13.0
14.4
5.9
20.1
7.6
3.1
Current account balance
(FY22e, % of GDP, HSBC forecasts)
-1.5
-1.1
-1.2
-1.7
1.9
3.3
5.6
-1.0
1.3
-6.7
-3.5
-4.6
-6.4
-3.2
-6.0
1.9
-5.3
-2.5
90.2
60.1
43.3
88.8
72.1
69.9
17.9
72.3
37.9
Headline CPI (last, % y-o-y)
10.1
7.4
2.2
5.6
1.5
3.2
8.4
5.9
48.7
HSBC CPI forecasts
(end-2022e, % y-o-y)
7.5
6.0
3.1
5.0
2.0
2.1
6.3
5.1
40.9
Sensitivity†
0.65
0.59
-0.03
-0.14
0.03
0.03
0.31
0.03
0.03
Latest foreign ownership of local
government debt
10.6%
18.1%
19.0%
1.9%
10.9%
25.9%
19.9%
28.2%
3.9%
Foreign ownership (a year ago)
9.2%
22.0%
24.9%
2.3%
9.7%
24.9%
23.7%
29.9%
6.3%
Fiscal balance
(FY22e, % of GDP, HSBC forecasts)
Government gross debt (% of GDP)
(FY22e, IMF forecasts)^
*FX adequacy ratio – IMF Ratio of reserve/ARA metric (October 2021)
**FY21/22 refers to 1 April 2021-31 March 2022 for India and South Africa
†Beta computed using a regression between the yields of 10-year government bonds and US Treasuries over the past three months
^IMF October 2021 forecasts
Source: HSBC forecasts
3
Fixed Income ● Rates
8 February 2022
Table 3. Forecast summary: 10Y yields (%)
Debt market
ASIA
Mainland China
Taiwan
South Korea
Malaysia
Thailand
Philippines
India
Hong Kong
Singapore
Sri Lanka
CEEMEA
Czech Republic
Hungary
Poland
Russia
Turkey
Israel
South Africa
LatAm
Mexico
Brazil
Colombia*
Chile
Argentina*
Current
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
2.70
0.69
2.60
3.66
2.14
4.89
6.88
1.65
1.78
12.70
2.60(-)
0.70(-)
2.50(+0.40)
3.70(-)
2.10(-)
5.00(+0.30)
7.00(+0.40)
1.60(-)
1.60(-)
13.00(+0.20)
2.70(+0.10)
0.80(-)
2.40(+0.40)
3.70(-)
2.20(-)
5.00(+0.30)
7.50(+0.70)
1.50(+0.10)
1.30(-)
12.90(+0.10)
2.80(-)
0.90(-)
2.30(+0.20)
3.60(-)
2.20(-)
5.10(+0.40)
7.60(+0.80)
1.60(+0.40)
1.20(-)
12.80(+0.10)
3.00(-)
1.00(-)
2.20(+0.20)
3.50(-)
2.30(-)
5.10(-)
7.80(+1.00)
1.80(+0.70)
1.10(-)
12.40(-0.10)
3.10(-)
1.00(-)
2.00(-)
3.50(-)
2.20(-)
5.10(-)
7.80(+1.00)
1.80(+0.70)
1.10(-)
12.00(-)
3.20(-)
1.00(-)
2.00(-)
3.50(-)
2.20(-)
5.30(-)
7.80(+1.00)
1.80(+0.70)
1.10(-)
11.80(-)
3.20(n/a)
1.00(n/a)
2.00(n/a)
3.50(n/a)
2.20(n/a)
5.30(n/a)
7.80(n/a)
1.80(n/a)
1.10(n/a)
11.80(n/a)
3.02
4.81
3.88
9.41
21.62
1.65
9.73
3.14(+0.57)
5.15(+0.36)
4.00(+0.72)
9.25(+1.19)
22.39(+3.39)
1.71(+0.55)
9.60(+0.16)
3.66(+0.79)
5.49(+0.42)
4.28(+0.51)
8.90(+0.99)
21.98(+2.98)
1.73(+0.42)
9.44(+0.59)
3.80(+0.94)
5.64(+0.86)
4.77(+1.00)
8.50(+0.97)
21.96(+3.96)
1.78(+0.32)
8.85(+0.36)
3.76(+0.93)
5.51(+0.82)
4.77(+0.78)
8.06(+1.20)
22.29(+6.29)
1.83(+0.22)
8.49(-0.11)
3.70(+0.92)
5.36(+1.05)
4.99(+0.78)
7.91(+1.69)
22.62(+6.62)
2.08(+0.42)
8.26(-0.42)
3.52(+0.83)
5.06(+0.87)
5.22(+1.03)
7.53(+1.69)
21.00(+6.00)
2.33(+0.53)
8.00(-0.74)
3.27(n/a)
4.88(n/a)
5.02(n/a)
6.86(n/a)
20.00(n/a)
2.58(n/a)
7.75(n/a)
7.62
11.49
8.65
6.03
51.50
7.95(-0.35)
11.45(-0.45)
9.15(+0.50)
6.25(+0.25)
55.00(-7.00)
8.15(-)
11.80(-0.35)
9.40(+0.05)
6.40(+0.50)
57.00(-5.00)
8.00(-0.10)
12.00(-0.60)
9.15(+0.15)
6.50(+0.45)
62.00(+6.00)
7.90(+0.05)
11.80(-0.45)
8.80(+0.10)
6.35(+0.45)
59.00(+7.00)
7.70(+0.10)
11.60(-0.30)
8.50(-)
6.20(+0.50)
52.00(+2.00)
7.50(+0.15)
11.30(-0.30)
8.30(+0.20)
6.20(+0.70)
48.00(-1.00)
7.50(n/a)
11.00(n/a)
8.00(n/a)
5.90(n/a)
44.00(n/a)
Source: Bloomberg, HSBC forecasts. Note: Colombia and Argentina uses 9yr and 6yr benchmark. Changes from the last published forecasts are shown in parentheses; latest published estimates were in EM Rates in 2022: Pockets of
value (2 December 2021)
(n/a) due to new longer forecast horizon
Table 4. Forecast summary: Money market rates (%)
Debt market
ASIA
Mainland China
Taiwan
South Korea
Malaysia
Thailand
Philippines
Indonesia
India
Hong Kong
Singapore
CEEMEA
Czech Republic
Hungary
Poland
Russia
Turkey
Israel
South Africa
LatAm
Mexico
Brazil
Chile
Colombia
Argentina
Source: Bloomberg, HSBC
4
Tenor
Current
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
7day
3m
3m
3m
6m
3m
6m
O/N
1m
3m
3m
6m
6m
2.27
0.48
1.50
1.97
0.41
1.85
2.25
2.78
4.06
4.23
0.33
0.50
0.18
2.10
0.50
1.60
1.95
0.40
1.80
2.30
3.00
4.10
4.30
0.35
0.50
0.20
2.10
0.50
1.60
1.95
0.40
1.90
2.40
3.10
4.10
4.30
0.50
0.70
0.35
2.15
0.50
1.70
2.30
0.50
2.00
2.50
3.30
4.30
4.60
0.70
0.90
0.50
2.20
0.50
1.70
2.60
0.50
2.10
2.60
3.55
4.60
4.90
0.90
1.00
0.50
2.20
0.50
1.70
2.60
0.75
2.20
2.70
3.55
4.80
5.00
1.10
1.20
0.65
2.20
0.50
1.70
2.90
0.75
2.30
2.80
3.55
4.80
5.00
1.20
1.30
0.65
2.20
0.50
1.70
2.90
0.75
2.30
2.80
3.55
4.80
5.00
1.20
1.30
0.80
3m
3m
3m
3m
3m
3m
3m
4.74
4.52
3.11
10.15
16.01
0.14
4.13
4.86
4.84
3.58
10.65
16.00
0.13
4.18
5.38
5.90
4.98
11.33
15.00
0.15
4.62
5.27
5.92
5.15
11.38
18.25
0.20
5.01
4.98
5.95
5.15
11.18
20.25
0.25
5.08
4.67
5.74
5.12
10.68
20.25
0.50
5.36
4.24
5.52
4.95
9.69
20.25
0.75
5.54
3.99
5.28
4.75
8.83
19.25
1.00
5.53
3m
6m
3m
6m
3m
6m
3m
6m
30-35d
6.19
6.60
11.30
11.76
6.15
6.78
4.50
5.41
37.56
6.40
6.45
11.80
12.25
6.90
6.95
6.00
6.40
49.00
7.05
7.10
12.10
12.00
6.90
6.70
6.70
7.10
55.00
7.30
7.45
12.00
11.90
6.85
6.15
7.40
7.35
60.00
7.40
7.40
11.90
11.70
6.75
5.75
7.17
7.35
52.00
7.70
7.70
11.80
11.60
5.90
4.95
7.15
7.15
50.00
7.65
7.50
11.70
11.45
5.15
5.15
7.10
6.90
48.00
7.50
7.35
11.60
11.15
5.00
5.00
7.00
6.80
46.00
Fixed Income ● Rates
8 February 2022
Top Trades
1. Buy SAGB8.25 Mar’32 vs Pay PLN 10Y IRS
Entry:
Entry date:

Target: 5.50%
Stop: 6.50%
Current: 5.78%
8
7.5
Rationale: Extreme real interest rates differential between
South Africa and Poland to compress
Risks: Increase in risk aversion or deterioration in fiscal outlook
or upside inflation surprises in SA
7
6.5
%

7.25%
02-Dec-21
6
5.5
5
4.5
Nov-21
Dec-21
Jan-22
Feb-22
Buy SAGB8.25 Mar’32 vs Pay PLN 10Y IRS
Entry
Target
2. Pay INR 5Y NDOIS
Entry:
Entry date:
5.68%
20-Jan-22
Target: 6.20%
Stop: 5.50%
Current: 5.85%
Rationale: Supply strains, inflation risks and higher oil prices all
point to risk of overshoot in rates

Risks: Dovish RBI
6.2
6
%

6.4
5.8
5.6
5.4
5.2
Nov-21
Dec-21
Jan-22
Pay INR 5Y ND OIS
Feb-22
Entry
Target
3. Buy IndoGB5.125 Apr’27
5.02%
21-Oct-21
Target: 4.75%^
Stop: 5.40%^
Current: 5.25%

Rationale: Low inflation and strong currency delay the need for
monetary easing

Risks: Rise in banks’ loan-to-deposit ratio
5.3
5.2
5.1
Axis Title
Entry:
Entry date:
5
4.9
4.8
4.7
4.6
Oct 21
Nov 21
Dec 21
Buy IndoGB5.125 Apr’27
Jan 22
Entry
4. Rec KRW 1Y1Y ND IRS vs Pay KRW 5Y5Y ND IRS
5. Rec MXN 5Y TIIE IRS vs Pay MXN 10Y TIIE IRS
Entry:
Entry date:
Entry:
Entry date:
-29bp
19-Nov-21
Target: 15bp
Stop: -50bp
Current: -20bp
6. Rec BRL 2Y PRE DI vs Pay BRL 5Y PRE DI
Entry:
Entry date:
-19bp
18-Nov-21
Target: 150bp
21bp
29-Nov-21
Feb 22
Target
Target: 80bp
Stop: -10bp
Current: 15bp
Target: 6.50%
Stop: 10.00%^
Current: 9.41%
7. Buy RFLB6.9 Jul’31
Stop: -100bp
Current: -17bp
Entry:
Entry date:
8.37%
02-Dec-21
Source: Bloomberg, HSBC
5
Fixed Income ● Rates
8 February 2022
Clients’ questions on EM
1. Is there a limit to which the PBoC can ease while the Fed is tightening? Would a hawkish turn at the ECB raise the bar
for China to ease further?
The monetary policy divergence between China and the US has widened notably and investors have been
questioning the sustainability of such divergence. The PBoC has always stated that it determines monetary policy
settings based on domestic growth and price considerations and the policy decision to lower interest rates in January
is consistent in this regard. It is also important to note that the relatively strong performance of the renminbi, which is
a result of strong exports, strong portfolio inflows and reduced outbound tourism spending, also provides sufficient
cover for the central bank’s easing. Going by the same train of thought, we do not see how a hawkish turn at the
ECB would materially affect the PBoC’s policy calculations, especially if it ends up resulting in more RMB resilience.
It is also important to bear in mind that the PBoC is more likely to be gradual in its easing path to avoid fuelling a
rapid build-up in debt levels. HSBC economists expect two more rounds of 50bp broad-based RRR reductions this
year. We expect the outperformance of China government bonds to persist in the first half of 2022.
2. India did not announce the measures for exemption on capital gains taxes on foreign investors’ bond investments in
the FY2022/23 budget released on 1 February. Does that hinder the index inclusion prospect for India government bonds?
India government securities (Gsec) available under the Fully Accessible Route (FAR) ticks most of the requirements
for inclusion in popular bond indices but one of the remaining hurdles has been around the operational/settlement
issues which could have been easily addressed in the event India government bonds could be settled via
international central securities depositories (ICSDs) such as Euroclear.
Ahead of the union budget, there were expectations that exemptions related to capital gain tax on foreign investors’
bond investments would be announced in order to facilitate the settlement via EuroClear and it could eventually pave
the way for the inclusion of Gsec in global bond indices. But the budget did not announce any such measures. While
the budget session of the parliament is still going on, it is theoretically still possible to introduce amendments to
finance bill related to capital gain taxes but it looks like a low probability event (source: Bloomberg, 1 February). We
note that EuroClear is not a requirement for inclusion in major indices but it could have easily expedited the inclusion
process. In our view, this development is likely to delay the timeline for inclusion of Gsec under fully accessible route
to be included in major bond indices. We had previously expected inclusion of India bonds in major indices in 2022
(India bonds: Inclusion effects, 12 October 2021) but we think that risks are that this will likely be delayed to 2023.
3. What is the impact of Bank Indonesia’s pre-emptive liquidity tightening on bond yields?
Bank Indonesia has announced that it will raise banks’ reserve requirement ratio from 3.5% to 5% on 1 March, 6%
on 1 June and 6.5% on 1 September. These impending adjustments are aligned with potential rate hike timings in
the US, underscoring the central bank’s intention to anchor investor expectations and stabilise the rupiah. The
combined adjustments will increase banks’ required reserves by IDR200trn and banks can comfortably adhere to the
requirements by reducing their holdings of outstanding open market operation (OMO) instruments. As of December
2021, banks have placed IDR900trn at the central bank in the form of OMO instruments. The policy action reduces
the level of banks’ excess liquidity but should not affect interbank liquidity. We view the policy decision positively, as
it dispels some investors’ concern that Bank Indonesia could fall behind the curve, by sticking to accommodative
monetary policy for longer than necessary. The need for much more aggressive tightening is low as Indonesia’s
inflation has reached just 2.20% as of January 2022, much lower than many other EM peers. We are mildly bullish
front-end IndoGBs.
4. What’s your view on the very flat or even inverted local yield curves in LatAm. Do you think this will persist or reverse
going forward?
We expect local curves in LatAm to steepen as the factors that led to the flattening trend start to vanish. Hiking
cycles are well underway across LatAm but one can now start to make the argument that markets have already
factored in where short-term rates are likely to peak in this tightening cycle. Because of these late tightening cycle
dynamics being in sight now, we expect the flattening trend to lose impetus in the months to come. Brazil and Chile
lead the way and the 2-10Y sectors in both countries are now inverted. This is not a surprise as both countries are in
relatively more advanced stages of the monetary withdrawal process following a front-loading of hikes. Taking Brazil
for example, we have been of the view that current pricing is unsustainable (curve inversion), with short-dated tenors
offering a sizeable rate premium compared to longer-dated tenors. In addition to that, the tightening cycle is
expected to conclude in the coming months with the local yield curve pointing to May. That said, we expect to see a
steeper yield curve in the 2-5Y sector of the PRE-DI curve, a steeper Chilean curve in the 2-10Y sector in Camara
IRS and Mexico to be steeper in the 5-10Y TIIE curve.
6
Fixed Income ● Rates
8 February 2022
EM Rates
Himanshu Malik, CFA
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited
himanshu1malik@hsbc.com.hk
+852 3941 7006
Global markets have been rocked after the Fed said it will be
“humble and nimble” but we stay bullish on EM local rates

Our most favoured markets are South Africa, China and Korea but
our preference for Russia is challenged by distinct geopolitical risk;
remain bearish on India and Turkey

We show why we like local EM debt vs external, expect more
tightening in asset-swap spreads, and how to play the curve
In the face of intensifying global financial market volatility, we maintain that the EM local debt
market is better prepared. Progressive policy tightening by numerous EM countries well ahead
of major global central bank normalisation, cycle-low foreign debt ownership in a majority of
EMs, some underlying price pressures in EM peaking and meaningful valuations (real
yields/carry) are several factors that shore up the EM local debt market. We maintain our mildly
bullish view on EM local debt vs a cautious stance on EM external debt.
Our most favoured markets are South Africa (buy 10Y SAGBs vs pay 10Y PLN IRS), China and
Korea (receive 2Y KRW vs MYR ND IRS). Stronger macro dynamics also underline our bullish
view on Russia (buy 10Y OFZs) but geopolitical risks are likely to weigh on this view in the near
term. We think that a further rise in yields should be seen as an opportunity to turn constructive
on local debt in some other markets, especially where tightening cycles are in a late stage
(Brazil) or implied tightening in forwards is too aggressive (Mexico). In contrast, we remain
bearish on local rates in India and Turkey.
Figure 1. Implied policy tightening in EM rates is already
at an advanced stage unlike previous periods when the
Fed signalled tightening or changes to its balance sheet
6
12m fwd implied policy rate (EM avg., LHS)
Fed fund rate (RHS)
2015 Fed
lift-off
%
5
1.50
2013 Taper
Tantrum
2018
Quantitative
Tightening
2
1
Jan-12
101
2.50
Jan-14
Jan-16
100
99
2.00
4
3
102
3.00
Jan-18
Jan-20
%
7
Figure 2. No surprise EM local debt has held up well
against the selloff in major bond markets as well as in
EM External debt over the past two months
1.00
0.50
0.00
Jan-22
Source: Bloomberg, HSBC Note: Average of 12 EM countries –BRL, CLP, COP, CZK, HUF, INR, ILS, KRW,
MYR, MXN, PLN and ZAR
Total return index
Andre de Silva, CFA
Head of Global EM Rates
Research
The Hongkong and Shanghai
Banking Corporation Limited
andre.de.silva@hsbc.com.hk
+852 2822 2217

98
97
96
95
94
93
92
Aug-21
EM LCD
Sep-21
EM EXD
Oct-21
Nov-21
G7 Govt. bonds
Dec-21
Jan-22
Feb-22
Source: Bloomberg, HSBC
7
Fixed Income ● Rates
8 February 2022
A tumble after Fed stays ‘humble and nimble’
Volatility in financial markets
to remain elevated in near
term
EM external debt more prone
to rising US Treasury yields
in the current episode of
policy normalisation
Foreign positioning in most
EM local debt markets has
been on a declining trend,
except for Korea and China
In the first month of the new year, the global backdrop for EM fixed income has materially
changed with renewed expectations of a much faster pace of policy tightening by the Fed,
including an early start to quantitative tightening while geopolitical tensions (Ukraine/Russia)
and a sharp rise in crude oil prices have clouded the inflation outlook and dented risk appetite.
Looking ahead, global financial market volatility is likely to remain elevated ahead of the March
FOMC meeting as market participants continue to seek clarity regarding the extent of Fed
tightening in terms of the pace and magnitude of rate hikes as well as the timing and scale of
shrinking the balance sheet.
However, one has to consider the fact that the spill-over of US monetary tightening into EM
economies may not be as strong in this tightening cycle for a number of reasons. First, unlike
previous episodes of Fed tightening or shifts in guidance regarding the Fed’s balance sheet,
many emerging markets this time are at an advanced stage of a hiking cycle making them well
ahead of the Fed. Forwards rates are also implying a sharper normalisation in EM monetary
policies (page 7, Figure 1). In our view, this is also largely the reason that EM local debt has
remained relatively resilient over the past two months despite a sharp sell-off in major bond
markets and EM external debt (page 7, Figure 2). We have also stated before that EM external
debt markets are more exposed this time around to the risks of rising US Treasury yields than
EM local debt (see Page 20, EM Rates 2022: Pockets of value, 2 December 2021).
Second, local debt markets in many EMs are becoming relatively less reliant on foreign capital
with aggregate foreign ownership of EM (excluding China and Korea) local debt falling by
almost 12ppt since 2013 and currently standing at only 12% (Figure 3). In certain high yielders
such as Indonesia and South Africa, non-residents now respectively own only 19% and 28% of
outstanding local government bonds, much lower than ahead of previous Fed tightening phases
(Figure 4). Similarly, fund flows data reveals that EM fixed income – in particular, local debt (EM
LCD) – has not been a key recipient of the flush global liquidity resulting from ballooning major
central bank balance sheets as a result of the pandemic policy response (page 9, Figure 5).
While the pace of inflows into EM funds (equity and bonds) has already begun to slow ahead of
the Fed’s lift-off and quantitative tightening (page 9, Figure 6), this suggests that EM LCD is
likely to be less vulnerable given already light positioning, which provides an additional
consideration alongside carry and attractive valuations to be constructive on local rates in
certain EMs (see EM Rates 2022: Pockets of value, 2 December 2021). However, note that EM
external debt has relatively high exposure based on positioning.
Figure 3. EM local debt is becoming less reliant on nonresident investors
Source: Central Bank websites, Bloomberg, HSBC
8
20%
15%
10%
5%
2013 (Taper Tanturm)
Source: Central Bank websites, Bloomberg, HSBC
2018 (QT)
INR
CNY
BRL
TRY
ILS
2015 (Fed lift-off)
THB
PLN
CZK
IDR
MXN
RUB
0%
KRW
2013
2015
2017
2019
2021
Foreign ownership of EM government debt (ex CNY and KRW)
25%
HUF
12%
35%
30%
COP
15%
40%
ZAR
20%
45%
MYR
% of outstanding bonds
25%
Non-resident ownership of govt. debt
50%
30%
10%
2011
Figure 4. Non-residents own less local debt in most
markets except Korea and China
Current
Fixed Income ● Rates
8 February 2022
However, we acknowledge that there will still be spill-over effects from tightening in global
financial conditions. EMs currently have relatively better external positions and larger FX
reserves to withstand pressure on the external accounts. In the event there is a dollar funding
squeeze on the back of the Fed’s quantitative tightening, this will, however, be first reflected in
the external funding markets with wider external debt spreads, and eventually leading EM
borrowers to rely more on local funding markets. This also underlines our preference for EM
local debt over EM EXD. EM FX, which is a key component of overlay for EM LCD, has also
been relatively resilient in the face of a dollar appreciation against major pairs. HSBC Global FX
Research expects certain currencies with solid core balances to better cope with rising
headwinds (see EM FX Roadmap: Eye of the tiger , 28 January 2022).
Massive government bond
supply in India will exert
upward pressure on local
rates
That said, we believe EM investors need to be more tactical and look for differentiation in EM
local rates in this environment. Our bullish view on South Africa Government Bonds (SAGBs) for
instance is expressed against PLN swaps (i.e. buy 10Y SAGBs vs pay 10Y PLN IRS) given our
view that a high real yield cushion in SAGBs makes them more resilient while PLN rates could
still be more exposed to global rates backdrop given a high correlation with G3 rates and a low
real yield cushion. The upcoming National Budget on 23 February should also provide more
details on South Africa’s funding requirements with rising commodity prices providing a boost to
government revenues. On the other side of the spectrum is India where the latest union budget
on 1 February has reinforced our bearish stance on INR local rates (India budget 2022 : Capex
cheer, bond market fear, 1 February). Not only are INR rates exposed to intensifying macro
risks (i.e. rising inflation, widening current account and fiscal deficit, worsening terms of trade
with rising oil prices and RBI lagging behind the curve) but a massive supply government bonds
outlined in the union budget is likely to put further upwards pressure on rates. This has led us to
revise our 2022-end forecasts 10Y Gsec yield to 7.8% and we recommend maintaining a pay
position in 5Y INR ND OIS.
Russia local rates factor in a
sizeable geopolitical risk, but
amongst EM HYs it has one
of the strongest external and
fiscal positions in 2022
Apart from macro risks, a fair amount of concession has been priced in RUB local rates to account
for geopolitical risks and this may continue to weigh against our buy 10Y OFZs in the near term. We
however hold on to our view given that Russia still has one of the strongest macro fundamentals
among EM high yielders. Elsewhere, in Indonesia, we have a buy trade idea on 5Y IndoGBs which
should be relatively better anchored with demand from local participants.
Cash bonds versus swaps
Relative to local bond yields, it is typical for swap markets to be more sensitive to external
factors including gyrations in US rates. However, it should be less so in the advanced stages of
Figure 5. Positioning in EM equities outstrips EM fixed
income
60
60
40
50
20
40
0
30
-20
20
-40
10
-60
0
EM local currency debt (LCD)
EM external debt (EXD)
EM Equities
30
-15
-60
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
Source: EPFR
USDbn
75
Yoy%
Cumulative fund flows (USDbn)
120
Figure 6. EM fund flows have weakened ahead of
adjustments in G3 central bank balance sheets
-80
-10
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Fund flows to EM (bond and equity)
G3 central bank balance sheets yoy% (RHS)
Source: EPFR, Bloomberg
9
Fixed Income ● Rates
8 February 2022
local tightening cycles or in the event of supply-related strains in local debt markets (such as in
India as well as Korea to some extent). Even during the ‘taper tantrum’ in 2013, EM swaps in
high yielders did worse than EM local debt despite heavy outflows from EM local debt (Figure
7). A similar outperformance in EM local bonds versus swaps was seen going into the Fed
tightening cycle in 2015. While EM swaps already imply significant tightening in forwards, we
believe that a tightening in asset-swap spreads (i.e. underperformance of EM swaps vs cash
bonds) is likely to continue, at least in the run up to the next FOMC meeting in March as swap
markets continue to price-in additional volatility risk premium.
Asset-swap spreads in South
Africa are higher compared
with India and Mexico
In our view, this provides opportunity to position for a tightening of asset-swap spreads in
markets such as South Africa where spreads are still quite sizeable and monetary policy
tightening is in the early stages. This, however, should be less so in markets such as India where
spreads have already tightened significantly and supply demand strains are turning worse.
Distinct curve dynamics
Curve steepeners in general offer sizeable carry across EM and look an attractive proposition in
many markets with too flat or inverted curves (Figure 8). This is to be expected given that frontend rates are pricing in sizeable hikes in most. However, we believe that the evolution of curves
across EM is likely to be quite varied due to the varying pace and stages of local monetary
policy cycle. A few countries are in the late stages of tightening (Brazil and Russia), some in the
CEE are still in the middle of a hike cycle despite aggressive front-loaded rate hikes given
concerns around wage inflation, while many in Asia have yet to start policy tightening. Some like
China are actually easing policy rates.
Local rates curves are likely
to be steeper in Brazil, Korea,
Chile and Mexico
Steeper curves, however, are more likely to evolve only in markets that are in advanced stages of
tightening (Brazil 2s5s DI steepener/ Korea 1Y1Y-5Y5Y/ Chile 2s10s Camara steepener) or that are
in the middle of a hike cycle with other factors arguing for a steeper curve (Mexico 5s10s TIIE
steepener). Curve dynamics is these markets could decouple from the trend in US rates curve which
continues to see a bear flattening against the backdrop of Fed’s tightening.
Elsewhere, curves are too flat across most EMs (Figure 8) but further flattening of curves is likely as
monetary policy tightening advances further. We believe one should look for opportunities to enter
into flatteners in these markets on any steepening of the curve and only where there is large potential
for flattening given a large negative carry. In some markets such as India, the view on the curve is
less clear. While a large government bond issuance programme and lack of demand for duration is
supportive for a steeper curve, the pace and the timing of the policy normalisation cycle by the RBI
will eventually dictate the shape of the curve.
Figure 7. Bond asset-swap still quite sizeable in South
Africa
5Y bond asset swap (bp)
250
200
150
100
0
-50
Source: Bloomberg, HSBC
10
2s5s
18
25bp to 16bp
CLP
2s10s
-46
228bp to -61bp
-14
2.0
CZK
2s10s
-93
82bp to -126bp
-4.6
HUF
2s10s
-44
125bp to -78bp
12.3
INR
2s5s
75
112bp to 48bp
15.2
KRW
2s10s
12
74bp to -1bp
11
MYR
2s5s
49
63bp to 29bp
7.5
MXN
2s10s
11
186bp to 3bp
16.3
PLN
2s10s
-48
137bp to -48bp
19.6
THB
2s10s
107
123bp to 81bp
7.5
ZAR
2s10s
202
329bp to 197bp
15.9
0.5
Jan-14
Jan-16
MXN
Jan-18
INR
3m carry/roll (bp)
CNY
1.0
-100
Current (bp) 12m range
2.5
1.5
50
-150
Jan-12
ZAR
Steepener
3.0
0.0
Jan-20
Jan-22
Fed fund rate (RHS)
%
300
Figure 8. Steepeners on swap curves make sense in
markets in late stage of tightening
Source: Bloomberg, HSBC
-2.1
Fixed Income ● Rates
8 February 2022
EM hard debt

Initial cracks have begun to emerge in EM EXD with widening of
spreads for EM HY issuers

Crowded positioning, valuations and prospects of negative credit
migrations set to lead to further underperformance of EM EXD vs LCD

Supply of EM EXD is set to fall in 2022
Stars not aligned for EM EXD
André de Silva, CFA
Head of Global EM Rates
Research
The Hongkong and Shanghai
Banking Corporation Limited
andre.de.silva@hsbc.com.hk
+852 2822 2217
Himanshu Malik, CFA
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited
himanshu1malik@hsbc.com.hk
+852 3941 7006
HSBC EM Rates Research maintains its cautious view on EM external debt that was outlined in its
2022 outlook (see page 20, EM Rates 2022: Pockets of value, 2 December 2021). EM EXD markets
are likely to be the first in line within the EM fixed income space to bear the brunt of tightening of
global financial conditions given rich valuations, crowded positioning and prospects of a negative
credit migration in high yield (HY) issuers with rising external headwinds. In general, high yield
issuers in external debt are likely to be the first to be affected (Figure 9) as investors avoid treading
down the credit spectrum. This has already started to materialise with almost 100bp of widening in
HY spreads over the past seven months but spreads in this segment have only returned to prepandemic levels. Considering that the pandemic shock has weakened the credit profile of most HY
issuers, there should be potential for much more spread widening. In contrast, the spread in the
investment grade (IG) space remains too tight but there is little value in taking exposure in this
segment against the backdrop of rising interest rates in major markets.
In terms of regional breakdown, external debt in LatAm and Asia has led spread widening while
spreads for EMEA issuers have actually tightened over the past month or so. This is largely because
of a heavy weight of GCC issuers that have benefitted from rising crude oil prices. As we have stated
before, we still believe that high yield sovereigns in GCC such as Oman and Bahrain still offer value
with their superior diversification attributes, sizeable spreads and gains from elevated oil prices.
Figure 9. Spreads in EM USD HY have started to widen
while they still remain tight in EM USD IG
EM USD IG
1,000
EM USD HY
350
900
900
800
800
700
700
250
600
200
500
150
400
Z-spread (bp)
Z-spread (bp)
300
100
50
2013 Taper
Tantrum
0
Jan-12
Source: Bloomberg, HSBC
Jan-14
2015 Fed
lift-off
Jan-16
Pandemic
shock
2018
Quantitative
Tightening
Jan-18
Jan-20
1,000
300
Z-spread (bp)
400
Figure 10. EXD spreads in EMEA still tightening
EM USD Asia
2018
Quantitative
Tightening
EM USD EMEA
600
500
400
300
200
200
100
100
0
Jan-22
EM USD LatAm
0
Jan-12
2013 Taper
Tantrum
Jan-14
2015 Fed
lift-off
Jan-16
Pandemic
shock
Jan-18
Jan-20
Jan-22
Source: Bloomberg, HSBC
11
Fixed Income ● Rates
8 February 2022
Lower EM EXD issuance in 2022
While most factors appear to be aligned for the underperformance of EM EXD, there is some positive
news on the supply front. We expect the issuance of external debt by EM to moderate in 2022.
External debt redemption needs are lower in 2022 vs 2021 while external financing needs in several
high quality sovereigns are also declining on the back of fiscal consolidation and improving fiscal
balances (such as certain issuers in GCC region). We expect gross EM sovereign issuance in 27
emerging markets covered in Table 5 to total USD116bn in 2022 vs USD142bn in 2021, marking a
18% yoy decline in gross supply. After accounting for USD57bn of redemptions in 2022, we expect
the net EM EXD sovereign issuance to total USD59bn vs USD71bn in 2021.
Decline in EXD supply is on
account of lower issuance in
LatAm and GCC countries
Romania, Egypt and Turkey
are likely to be largest
issuers of EM EXD in
CEEMEA
The decline in 2022 EXD supply is due largely to lower issuance by LatAm and GCC sovereigns
(Table 5). Including both quasi-sovereign and sovereign external debt issuance, Mexico’s EXD
supply in 2021 totalled a sizeable USD35.1bn (largest within EM) but we expect its EXD
issuance to fall to USD16.4bn in 2021. Within LatAm, Brazil is the only market that we expect to
see an increase in external debt issuance in 2022. In GCC, fiscal balances are significantly
improving in high quality issuers and likely to turn into larger surpluses in certain markets such
as Qatar, Saudi Arabia and UAE. In addition, refinancing needs are also declining for most GCC
sovereigns, which in our view should lead to an overall lower issuance in the region.
Asian issuers that mostly fall into the investment grade group will also likely see a modest
decline in issuance and we expect their combined gross supply to fall to USD21bn in 2022 from
USD25bn in 2021. High yield issuers in Asia such as Sri Lanka are still unlikely to be able to tap
the external debt markets and likely to rely on bilateral/multilateral funding arrangements to
meet the external funding needs. Elsewhere, we expect EXD issuance to rise for issuers in
CEEMEA (ex GCC) region that we expect to issue a total of USD43bn in external debt in 2022
vs USD34.4bn in 2021. In particular, Romania, Turkey and Egypt are likely to remain the largest
issuers within the region.
Table 5. HSBC’s hard currency sovereign bond issuance projections
LatAm
GCC
CEEMEA (ex-GCC)
Asia
USDbn
Mainland China
Hong Kong
Indonesia
Korea
Malaysia
Philippines
Sri Lanka
Egypt
Hungary
Israel
Poland
Romania
Russia
South Africa^
Serbia
Turkey
Ukraine
Bahrain
Oman
Qatar
Saudi Arabia
UAE
Brazil
Chile
Colombia
Mexico*
Total
_______________ Gross issuance _________________________ Net issuance __________
2022
2021
Change
2022
2021
Change
6.0
8.6
-30%
3.5
8.6
-59%
2.0
2.5
-20%
2.0
2.5
-20%
7.0
8.9
-21%
5.4
5.6
-3%
0.5
0.5
0%
0.5
0.5
0%
1.5
1.3
15%
1.5
0.5
200%
4.0
3.0
33%
4.0
1.4
186%
0.0
0.0
0%
-1.5
-1.0
50%
7.5
6.8
11%
5.0
6.8
-26%
1.7
5.6
-70%
1.6
2.0
-20%
3.5
0.0
100%*
2.0
-0.3
775%
2.5
0.5
436%
-1.2
-7.5
-84%
8.2
8.3
-1%
4.3
8.3
-49%
2.5
1.2
102%
-0.1
1.2
-107%
4.0
0.0
100%*
3.0
5.0
-39%
2.1
3.3
-36%
1.2
2.5
-52%
8.3
6.8
22%
-2.9
-0.7
300%
2.5
2.0
24%
-1.0
-3.5
-72%
3.0
4.0
-25%
1.5
3.0
-50%
3.0
5.0
-40%
2.0
3.5
-43%
2.0
0.0
100%*
0.0
-3.5
-100%
4.5
9.8
-54%
0.0
4.3
-100%
5.0
10.3
-51%
2.0
7.8
-74%
6.0
2.3
167%
5.5
-1.8
406%
6.1
9.8
-38%
5.7
9.4
-39%
6.3
6.4
-2%
6.1
4.2
45%
16.4
35.1
-53%
8.7
12.4
-30%
116
142
-18%
59
71
-17%
Source: Ministry of Finance and Treasury websites, HSBC estimates
Notes: *includes quasi sovereign, ^Apr-Mar fiscal year
12
Fixed Income ● Rates
8 February 2022
EM FX
Paul Mackel
Global Head of FX Research
The Hongkong and Shanghai
Banking Corporation Limited
paulmackel@hsbc.com.hk
+852 2996 6565
Joey Chew
Senior Asia FX Strategist
The Hongkong and Shanghai
Banking Corporation Limited
joey.s.chew@hsbc.com.hk
+852 2996 6568
Zoey Zhou
Associate, FX Strategy
The Hongkong and Shanghai
Banking Corporation Limited
zoey.z.zhou@hsbc.com.hk
+852 3945 2400
Eye of the tiger
Initially, EM FX managed to have a fair start to the year, bucking the weaker trend that was evident in
the final months of 2021 (Figure 11). This happened despite a number of market signals suggesting
caution should be warranted. For example, the persistent rise in short-end US Treasury yields has
not coincided with a stronger USD (Figure 12). This reflects a shift away from US exceptionalism with
heightened concerns about the Fed’s intentions to deal with inflation at the expense of growth – the
tapering and then shrinking of the Fed’s balance sheet, not just the upward path for interest rates.
Our baseline scenario still expects the USD to strengthen versus most major currencies. This
presents a clear challenge to EM FX, especially amidst a hawkish Fed. Other EM-specific factors,
namely prudent monetary and fiscal policies and healthier inflows could protect some EM currencies
against a buoyant DXY, but it will not be smooth sailing.
Meanwhile, with the uncertainties from the Fed and geopolitical tensions, EM portfolio flows have
slowed in contrast to what was at first a healthier start to the year. We have frequently discussed how
these was largely absent for most EM markets in 2021 (outside of China, Korea (bonds), India
(equities) and Brazil), making other flows – current account and net FDI positions – more important. It
is very early days to gauge how the trend of EM portfolio flows will develop, but any improvement to
last year would be welcomed when a number of EM current account balances are likely to be less
supporting than last year. Also, with the growth differential versus DM likely to widen, this could ‘pull
in’ EM portfolio flows. This is clearly skewed by the belief that China’s economy will gain speed this
year in contrast to the US, the Eurozone and other economies slowing. From a timing perspective,
we recognise that there are some near-term uncertainties, given China’s economy is slowing.
However, the message at China’s Central Economic Work Conference (CEWC) in December
suggested the policy focus will shift from de-leveraging/de-risking to supporting growth.
With the Year of the Tiger approaching, another theme will be how China’s policymakers respond to
the slowing of the economy. The National People’s Congress in early March and the policies
deployed around this event will shape a lot to come, not only for the RMB but EM FX altogether.
Despite the current uncertainties, and when taking a longer-view, some currencies could cope better
with the fights ahead, including the likes of the SGD, IDR, INR, THB, MYR, CEE-3, ILS, MXN and
RUB – if tensions subside. For details see EM FX Roadmap: Eye of the tiger , 28 January 2022.
Figure 11. EM currencies were following a similar course
like 2018, but this broke down in early January 2022
Figure 12. The DXY deviated from its relationship with
higher short-end Treasury yields
Source: Bloomberg, HSBC. Note we take a simple average of 21 EM exchange rates (versus USD), indexed to 1
Jan 2018 = 100
Source: Bloomberg, HSBC
13
Fixed Income ● Rates
8 February 2022
EM Economics
Dr Murat Ulgen
Global Head of Emerging
Markets Research
HSBC Bank plc
muratulgen@hsbc.com
+44 20 7991 6782
Nicholas D. Smithie
Senior GEMs Strategist
HSBC Securities (USA) Inc.
nicholas.d.smithie@us.hsbc.com
+1 212 525 5350
Ali Cakiroglu
EM Strategist
HSBC Bank plc
alicakiroglu@hsbc.com
+44 20 7991 0547
Darkest before dawn
What could possibly go right for EM?
2021 was an unpleasant year for EM, as the asset class was hit by a series of negative supplyside shocks, causing a visible deterioration in EM’s growth-inflation mix and creating stagflation
risks.
Most challenges dogging EM remain intact, including an increasingly hawkish Federal Reserve,
no major lift from China and a bleak growth outlook, so the path of least resistance is to stay
cautious on EM. After two years, COVID-19 still remains a major risk to the global economic
outlook, while EM still underperforms developed markets (DM) on the vaccine rollout. Moreover,
most economies are facing enormous cost-side price pressures that are spilling over to
consumer inflation and keeping central banks on a hawkish footing. Fiscal policy also needs
tightening to rein in large borrowing needs when interest rates are rising. All this comes amid a
plethora of geopolitical risks and country-specific issues. In sum, a weak cycle and retreating
global liquidity forms a challenging backdrop for EM.
But none of these problems are new and markets have already priced in a stagflationary
backdrop. EM valuations are cheap from equities to some currencies, and local debt markets
are depressed, not only by capital losses but also dragged down by weak FX. Investors have
substantially reduced local debt positions since the start of the pandemic (Figure 13) and
institutional investors have increased their cash levels. Moreover, many EM central banks have
already front loaded the policy normalisation (with cumulative rate hikes totalling c2,900bps),
leading to a widening of EM-DM real policy rate differential (Figure 14).
Overall, while caution is indeed still warranted for now, an alternative scenario is possible as the
year progresses, especially when there is more clarity on both US monetary policy and China’s
growth trajectory. We advocate being selective for the time being but also believe markets will
be a lot more susceptible to positive surprises given how long the downbeat mood and EM
disappointment have been a factor (GEMs Investor: Emerging Markets in 2022: Darkest before
dawn, 20 January 2022).
Figure 13. Foreign ownership has declined substantially
in local debt markets
Figure 14. EM’s real rate differential with DM is at its
highest level in more than 15 years
Source: Finance ministries, central banks
Source: Bloomberg, Refinitiv Datastream, HSBC
14
Fixed Income ● Rates
8 February 2022
EM ESG Sovereigns
Wai-Shin Chan, CFA
Head, Climate Change Centre;
Head, ESG Research
The Hongkong and Shanghai
Banking Corporation Limited
wai.shin.chan@hsbc.com.hk
+852 2822 4870
Louisa Lam, CFA
Credit Analyst, Asia Pacific
The Hongkong and Shanghai
Banking Corporation Limited
louisa.m.c.lam@hsbc.com.hk
+852 2996 6586
ASEAN sustainable finance is set to accelerate
ASEAN markets may not be as large as China and Korea in terms of green, social and
sustainable (or labelled) bond issuance, but green and sustainable finance is set to accelerate
in the region. The transformation to low carbon economies requires large investments. For
instance, the Indonesian government said that it may need USD200bn annual investment in the
next decade and over USD1trn annually in the next four decades to achieve carbon neutrality
by 2060. Growing the sustainable finance market is a crucial part of its paths to net zero,
channelling capital into green and sustainability projects.
To increase the scrutiny on greenwashing, the ASEAN region released its first draft of the
ASEAN Taxonomy for Sustainable Finance in Nov 2021, which uses a “traffic light” system
(green = sustainable, amber = neutral and red = harmful) classifying green activities and
investments. Meanwhile, the individual members are also developing their own versions based
on the regional document (see Figure 15). These taxonomies will define green and sustainable
activities in the region and serve as a foundation for the green bond frameworks and reporting.
The clear green criteria and framework for projects and activities should encourage green and
labelled bond issuance, we think.
Given the region’s high reliance on fossil fuel energy, renewables and the power infrastructure
will take up a large part of green and sustainable projects, in our view. The governments are
committed to increase the share of renewables in the energy mix and to phase out/down the
use of coal-fired power plants. As most of power assets are under government control, they and
related power utility entities are responsible for green initiatives on energy transformation. And
hence, we believe they will be one of the key issuers of green and labelled bonds in the region.
Figure 15. ASEAN markets are developing their own
green & sustainable taxonomies
Figure 16. ASEAN will accelerate green and other
labelled bond issuances
*Consisting of the Fiscal Policy Office, the Bank of Thailand, the Securities and Exchange Commission, the
Office of Insurance Commission, and the Stock Exchange
Source: MAS, BoT, OJK, BNM, ASEAN Taxonomy Board
* CN quasi-sovereign issuers raised a total of USD5.5bn hard currency and USD55.9bn local currency labelled
bonds in 2021
CN: mainland China, ID: Indonesia, KR: Korea, MY: Malaysia, TH: Thailand. Source: Bloomberg
15
Fixed Income ● Rates
8 February 2022
EM high yielders
Mario Robles
Head of LatAm Rates Strategy
HSBC Securities (USA) Inc.
mario.robles@us.hsbc.com
+1 212 525 4119
A combination of tighter
relative monetary conditions,
particularly vs the US Fed,
and a less supportive risk
environment may trigger a
steeper yield curve
Mexico
Neutral
Mexico’s growth trends were already under scrutiny in 2019 when it posted a flat growth rate, a
trend that was later exacerbated by COVID-19. While growth saw its fair share of rebound during
2020-2021, high frequency data is showing that growth is decelerating once again (Figure 17). To
complicate things even further, headline inflation remains above 7% in YoY terms, suggesting that
these two features may coexist in the months to come. In addition, one of Mexico’s main sources
of growth is economic activity in the US, which is also seeing its share of concerns that could filter
down into Mexico’s forward-looking expectations. On the structural reform side, the electricity
reform proposed by President Lopez Obrador may continue to weigh on expectations of how the
structural side of things may evolve over the coming months or years, and how this may impact
growth prospects and, ultimately, credit metrics. Taking all these factors, and adding potentially
higher UST yields and more volatile price action adding pressure to local rates (at least in relative
value terms), we think the result may be a steeper yield curve.
Short-dated yields: Slow growth could again lead to doubts over the potential reaction function
of the Mexican Central Bank (Banxico) as growth sputters. Currently, the local curve is
embedding a 50bp rate hike at February’s meeting, followed by c. 40bp hikes at each of the
March and May meetings, and a total of around 220bp for 2022. We think that markets have
already incorporated a significant amount of tightening into short-dated tenors, thus potentially
limiting the scope for additional premium building in this sector, and implicitly making an even
flatter yield curve less likely.
Changes to the energy sector
are signalling greater
government participation
Long-dated yields: We see a potentially steeper yield curve. The starting point here is a very
flat 5’s10’s sector that, in our view, does not properly compensate investors for the current risk
factors – higher UST yields and a less supportive global backdrop for high yielding assets – which,
historically, have not boded well for long-dated rates. In addition, we expect additional duration to
enter the market via larger primary government bond auctions than in 2021, thus adding rate
pressure from a supply perspective. Structural considerations (electricity reform) may also add
pressure to long-term fiscal and growth prospects thus requiring an additional premium for these
factors as well.
Figure 17. Mexico’s industrial production tracks the US closely, possibly suggesting
slower growth ahead
Source: Bloomberg, HSBC
16
Fixed Income ● Rates
8 February 2022
Mario Robles
Head of LatAm Rates Strategy
HSBC Securities (USA) Inc.
mario.robles@us.hsbc.com
+1 212 525 4119
The presidential election will
likely be the main event of
the year
A steeper yield curve may be
the path of least resistance to
finding an equilibrium
between short and belly
tenors vs longer dated ones
Brazil
Neutral
After a sustained flattening trend observed in past months, our models indicate that flattening
forces may be subsiding as growth expectations have tumbled in the FOCUS survey and are now
close to 0.30% for 2022. The DI curve is also indicating that the end of the tightening cycle is in
sight. As of now, the market is pricing a 100 bps Selic hike at the March meeting, followed with
May’s COPOM meeting possibly being the last at which implied yields are pricing-in (c.42 bps).
With the end of the tightening cycle now more or less in sight, we think that the curve flattening
forces that we observed during most of 2021 may start to recede in the weeks to come.
Short-dated yields: Local markets have rallied in recent weeks as Brazil has avoided more
extreme (and possibly more damaging) fiscal outcomes. Despite this, markets may not have
completely forgotten the ongoing fiscal woes. In addition to the possibility of fiscal expansion,
higher funding costs due to the level of the Selic rate, when compounded with a sluggish growth
outlook and its effect on the fiscal coffers amid a political process to elect a new president,
could still create an environment of caution. We believe that the combination of these factors is
likely to create headwinds for long-dated yields, at least on a relative value basis vs short and
curve-belly tenors (which we believe could fare better), thus leading to a steeper yield curve.
Long-dated yields: Markets are operating under the main assumption that the presidential race
may be between two candidates: on the right-leaning side, President Bolsonaro, and on the leftleaning, ex-President Lula da Silva. History shows that markets have reacted negatively to the
fiscal agendas of both these candidates at some point in their presidential tenures. We see this
as a potential obstacle that could prevent Brazil from shedding the premium embedded in its
rates. We think this could affect mostly long-dated tenors and lead to steepening, and is more
likely to happen as we draw closer to the election (October).
Figure 18. Market implied policy rate in Brazil suggests BCB may be done hiking before
mid-year 2022
Source: Bloomberg, HSBC
17
Fixed Income ● Rates
8 February 2022
Radoslaw Bodys
Head of CEEMEA Rates Strategy
HSBC Bank plc
radoslaw.bodys@hsbc.com
+44 20 7991 5882
Russia
Bullish
We remain structurally bullish on Russia, given our macro and policy outlook, even though
geopolitics may continue to weigh on the markets in the near term. The CBR’s aggressive
monetary tightening should help bring inflation down in 2022 and the longer end of the curve
should start pricing in an unwind of the recent tightening; we like buying RFLB 6.9 07/31.
The CBR hiked rates by a cumulative 425bp last year, taking the main policy rate to 8.50%, well
above the central bank’s own estimate of neutral rate (5-6% nominal). The market is expecting
rates to rise another 100bp over the next six months and current pricing implies front-end rates
would stay 200-300bp above the CBR’s estimate of neutral rate for the next 10 years. We do not
believe keeping monetary policy so restrictive for so long is a plausible scenario under pretty
much any set of reasonable macro assumptions, especially if one considers that Russia’s output
gap may be much more negative than most estimates suggest.
Market pricing implies frontend rates would stay 200300bp above the CBR’s
estimate of neutral rate for
the next 10 years
The CBR’s own forecasts see CPI inflation falling to 4.0-4.5% at end-2022 and policy rate falling
to 5.5-6.5% as soon as in 2023, from the projected average of 7.3-8.3% in 2022. This is an
extremely dovish set of forecasts compared to market pricing and one that is closer to our view.
That said, we think that receiving front-end rates may be premature, considering the CBR’s
hawkish policy bias and that the CBR has been reportedly considering lowering the inflation
target to 2-3%, from 4% (Financial Times, 31 July 2021).
We like, however, buying 10yr OFZs, as the long-end should start re-pricing Russia’s mediumterm policy outlook before the CBR signals their readiness to unwind the recent tightening. This
is why we are bullish on longer-dated OFZs and have a bias for the curve to flatten further. 2021
was the year of aggressive bear-flattening, with the flattening driven largely by rising short-end
rates (2yr yields up around 500bp vs 10yr yields up by almost 300bp). 2022 may be the year of
bull-flattening, with the flattening likely to be driven by the long-end pricing in an unwind of this
year’s policy tightening which has been arguably extrapolated too far into the future.
Figure 19. Market is pricing Russia's short-term rates 200bp+ above neutral for the next
decade
11
Forward short-term rate
10
%
9
8
7
6
Neutral rate
5
4
3m
Source: HSBC, Bloomberg
18
1y3m
2y3m
3y3m
4y3m
5y3m
Fixed Income ● Rates
8 February 2022
Radoslaw Bodys
Head of CEEMEA Rates Strategy
HSBC Bank plc
radoslaw.bodys@hsbc.com
+44 20 7991 5882
South Africa
Bullish
We are bullish on South Africa for 2022 as recent macro-market divergence makes SAGBs
among the most attractive bonds in EM (see: CEEMEA Rates in 2022: Trading real rates
divergence, 13 Dec 2021). South Africa’s inflation, at 5.9% yoy, is among the lowest in
CEEMEA and well below its peers, including Central Europe (6-9%), Russia (8.4%), Mexico
(7.4%), and Brazil (10.7%). Consequently, SAGBs offer some of the highest real rates globally
and the SARB should be under much less pressure to tighten policy than other EMs.
We believe South Africa’s decoupling from the global inflation trend is underappreciated by the
markets. Meanwhile, it’s quite extraordinary that South Africa’s inflation is second lowest in
CEEMEA (after Israel!) and lower than in all of Central Europe, including Czech Republic,
Poland, and Hungary. Even more strikingly, core inflation is just over 3% -- well below most EM
and as well as the US, and the SARB forecasts both CPI and core inflation at just over 4% at
end-2022. This inflation divergence has led to a sharp increase in relative attractiveness of ZAR
rates vs other EMs in recent months.
South Africa and Poland are at the extremes of the real rates spectrum in CEEMEA; Poland’s
10yr real yield is the most negative at -4.6%, while South Africa’s is the most positive at 4%.
This implies a very large rate differential of over 850bp. SAGBs are also among the most
attractive bonds in CEEMEA, and EM more broadly, on several other metrics, including curve
steepness and ASW spread, which are not just among the highest in EM but also has increased
recently and are substantially above their respective 5-year averages – despite both inflation
and fiscal outlook having improved in recent quarters.
We like buying bonds in South Africa, given that ASW spread is very attractive both from a
geographical and historical perspective (substantially above most major EMs and well above 5yr
average), while in Poland bearish trades are more likely to be expressed in the swaps space, as
bonds tend to outperform swaps given demand from local banks and Asian investors.
Figure 20. SAGBs 10yr real yield vs. POLGBs just shy of the early-2020 high when S. Africa
lost the investment grade
1200
1000
Real yield spread (bp)
South Africa’s underlying
inflation pressure is among
the lowest and real yields
among the highest in EM
800
10yr SAGB - 10yr POLGB real yield differential
600
400
200
0
-200
-400
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: HSBC, Bloomberg
19
Fixed Income ● Rates
8 February 2022
Himanshu Malik, CFA
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited
himanshu1malik@hsbc.com.hk
+852 3941 7006
India
Bearish
We have turned more bearish on INR rates following the latest union budget on 1 February and have
revised our forecasts for 10Y Gsec yields to 7.5% by 2Q 2022 and 7.8% by the end of 4Q 2022
(India budget 2022 : Capex cheer, bond market fear, 2 February). We also maintain our strategy to
pay INR5Y ND OIS and believe that INR rates are likely to find equilibrium at much higher threshold,
compensating for a negative carry. Even before the union budget, upward pressure on INR rates and
in particular Indian government securities (Gsec) yields has started to emerge in the new year led by
poor appetite at weekly auctions (Figure 21), lack of support from the RBI which has continued to sell
bonds in secondary markets while higher US rates and rising oil prices further complicated the
outlook on INR rates.
However, the budget delivered a disappointment to bond markets with plans for a massive Gsec
gross borrowings of INR14.95trn in FY22/23. Ahead of the budget, there were hopes for measures to
alleviate supply demand strains in the Gsec market, including taxation related changes for Gsec that
could facilitate the settlement via EuroClear but such measures were not announced. The Budget
session of the parliament will conclude on 8 April and, theoretically, it is still possible to introduce
amendments to the finance bill related to capital gain tax but it looks like a low probability event
(Source: Bloomberg, 1 February). While EuroClear is not a requirement for inclusion in major indices,
we think that this development is likely to further delay the timeline for inclusion of Gsec under the
fully accessible route to be included in major bond indices. We had previously expected inclusion of
India bonds in major indices in 2022 (India bonds: Inclusion effects, 12 October 2021) but we think
that the risks are that this will likely be delayed to 2023.
Finally, supply strains in the Gsec markets are likely to further increase with a massive borrowing
programme in the next fiscal year and in the absence of any demand support either from the
Reserve Bank of India (RBI) or index inclusion. The RBI has indeed been selling government bonds
in the open market. In our view, it will be difficult for the market to absorb such a massive supply at
the time, when the RBI has been selling government bonds in the open market and banks may not
have as much appetite for holding government bonds with normalising liquidity conditions and
improving economy. The focus will now also turn to the RBI and whether it will further delay the
monetary policy normalisation at the upcoming MPC meeting on 10 February given the emerging
strain in the bond markets. In our view, any delay in policy normalisation will not change the outlook
for long-dated rates given rising inflation risks and supply strains.
RBI bond purchases
140
120
100
80
60
40
20
0
Jul-19
Oct-19
Jan-20 Apr-20
Weekly Gsec supply at auctions (LHS)
Source: RBI, HSBC
20
Jul-20
Oct-20
Jan-21 Apr-21
Jul-21
Oct-21
Jan-22
Duration supply absorbed by primary dealers (RHS)
PV01, INRm
800
600
400
200
0
-200
400
350
300
250
200
150
100
50
0
Apr-19
INRbn
INRbn
Figure 21. A lack of appetite for duration supply has been evident at weekly auctions as
RBI continues to sell bonds in open markets
Fixed Income ● Rates
8 February 2022
Indonesia
Mildly bullish
We are mildly bullish on Indonesian bonds. The rise in Indonesia’s inflation continues to be
milder than many EM countries’. Inflation touched 2.20% in January, which is at the lower end
of the central bank’s target range of 2-4% yoy. As a result, Indonesia’s real yield continues to be
the highest across EM (Figure 22). Insurance and pension companies were the largest buyers
of government bonds in in January, net adding IDR24trn to their IndoGB portfolio. There are
likely two potential positive bond supply surprises in the period ahead. First, the country’s fiscal
deficit reached 4.65% of GDP in 2021, much lower than the government’s expectation of 5.25.4%. This suggests that the government likely overfunded its operations in 2021, which should
mean that there is sizeable leftover cash for use in 2022. Second, the fiscal deficit target for
2022 has been set at 4.85% of GDP, but the potential increase in revenue due to various tax
reforms due this year could bring the deficit closer to 4.3%. Once the deficit target is officially
revised lower, the financing target should also be lowered. Based on our calculations, the
government needs to raise an average IDR20trn per conventional auction to fund a deficit target
of 4.85% of GDP. However, a lowering of the deficit closer to 4.3% of GDP and the use of
leftover cash from 2021 could lower the per-auction average size to IDR15trn.
Bank Indonesia announced that it will raise banks’ reserve requirement ratio from 3.5% to 5%
on 1 March, 6% on 1 June and 6.5% on 1 September. These impending adjustments are
aligned with potential rate hike timings in the US, underscoring the central bank’s intention to
anchor investor expectations and stabilise the rupiah. The combined adjustments will increase
banks’ required reserves by IDR200trn and we think banks can comfortably adhere to the
higher requirements by reducing their holdings of outstanding open market operation (OMO)
instruments. As of December 2021, banks have placed IDR900trn of excess liquidity at the
central bank in the form of OMO instruments. The policy action reduces the level of banks’
excess liquidity parked at the central bank but should not affect interbank liquidity. We view the
policy decision positively, as it is aimed at alleviating some investors’ concern that Bank
Indonesia could fall behind the curve by staying accommodative for longer than necessary.
Figure 22. Indonesia’s real yield is still the highest in EM
6
4
10yr real yield (%)
Pin Ru Tan
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited,
Singapore Branch
pin.ru.tan@hsbc.com.sg
+65 6658 8782
2
0
-2
-4
-6
IDR
ZAR
COP
BRL
CNY
INR
12m ago
RUB
MYR
PEN
MXN
THB
HUF
RON
PLN
Current
Source: Bloomberg, HSBC
21
Fixed Income ● Rates
8 February 2022
Andre de Silva, CFA
Head of Global EM Rates
Research
The Hongkong and Shanghai
Banking Corporation Limited
andre.de.silva@hsbc.com.hk
+852 2822 2217
Grace ZJ Wang
Associate, Asia-Pacific Rates
Strategy
The Hongkong and Shanghai
Banking Corporation Limited
grace.z.j.wang@noexternalmail.hsb
c.com
+852 22881602
Philippines
Neutral
We retain our neutral view on the PHP local rates market on the back of easing inflation
pressures and accommodative monetary policy in the first half of this year. We continue to
recommend positioning for a slightly steeper curve in the coming month against the backdrop of
stronger than expected domestic economic recovery, long-end bond supply pressure as well as
higher global rates.
The Philippines local government bond (RPGB) yields continue to gap higher led by higher US
rates and stronger than expected Q4 GDP print which came out at 7.7% y-o-y (consensus:
6.3%). The HSBC Economics team expects the central bank Bangko Sentral ng Pilipinas (BSP)
to lift the interest rate by 50bp in H2, whilst a reduction of 50bps in RRR has been pencilled in
by the central bank for H1 to offset tighter liquidity settings given the BSP has downsized its
borrowings to the government from PHP540bn to PHP300bn. Liquidity injection through a
potential RRR cut in the coming months is also likely to be more favourable for the front-end of
the curve. That said, we expect to see this segment move range bound.
In terms of bond supply, there will be PHP140bn worth of government bond offerings in total in
February with weekly bond auctions in 4Y, 7Y and 10Y tenor (Figure 23). Given the supply is
heavily skewed towards the belly and long-end of the curve, yields in the long-dated segment
edged higher and the belly underperformed the most post the announcement of the auction
schedule. In addition to that, a gradual slowing of the pace of central bank’s purchases of
government bonds from the secondary market is also adding to supply pressure in the bond
markets. Coupled with a heavy duration supply, we are of the view that the long-end of the yield
curve will grind higher over the next month.
Figure 23. Feb Treasury Bond supply is heavily skewed towards the belly and long-end of
the curve
Source: The Bureau of the Treasury, HSBC
22
Fixed Income ● Rates
8 February 2022
EM low yielders
Pin Ru Tan
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited,
Singapore Branch
pin.ru.tan@hsbc.com.sg
+65 6658 8782
Mainland China
Mildly Bullish
The outperformance of mainland China government bonds relative to their global peers has
intensified into 2022, with the central bank embarking on the first interest rate reduction in
almost two years. We expect monetary accommodation to remain in place for the first half of
this year, as the desire to keep local COVID-19 cases to a minimum continues to weigh on
economic activity levels. Compared with the Lunar New Year holiday break in 2021, domestic
tourism spending during the recent festive season fell 4% while movie box office sales
contracted 23%. Based on the forward interest rate swap curve, another round of 10bp interest
rate reduction is not yet fully priced in. The increasingly hawkish chorus of global central banks
is unlikely to sway the dovish policy course in China, due to the resilience of the renminbi and
policymakers’ strong focus on maintaining economic stability ahead of the party congress later
in the year. Across the curve, we continue to see better value in longer-dated bonds, which are
trading at a sizeable yield premium to the 1yr certificate of deposit rate (Figure 24). Conversely,
short-dated bond valuations are rich, with yields trading below the 7-day interbank funding
rates.
The central and local governments respectively issued RMB27bn and RMB670bn of bonds in
January, close to our expectation of RMB50bn and RMB600bn. We expect similar issuance
momentum for February and March but this should not affect the bond rally, which we expect to
be driven more by macro conditions and monetary policy direction.
Figure 24. There is room for long-end yield compression, after the sharp drop in term
funding rates
Source: CEIC, HSBC
23
Fixed Income ● Rates
8 February 2022
Radoslaw Bodys
Head of CEEMEA Rates Strategy
HSBC Bank plc
radoslaw.bodys@hsbc.com
+44 20 7991 5882
Poland
Mildly bearish
We remain mildly bearish on PLN rates and like to pay PLN 10Y vs buying SAGB 2032 on
unusually large real rates divergence between the two markets. The NBP has been more
hawkish than generally expected in recent months, which pushed yields sharply higher across
the curve, including at the long end, but prevented the curve from steepening.
Despite a dramatic policy U-turn by the NBP, which has hiked rates by 215bp over the past four
months, taking the main policy rate to 2.25%, Poland’s monetary stance remains among the
most accommodative in the region. Indeed, the NBP’s current policy rate of 2.25% compares to
a neutral nominal rate of 3-4%. FRAs are pricing a peak in 3M WIBOR at around 4.75% at end2022 (vs 3.06% currently), which is below the lower-end of Taylor rule estimates, but
reasonable if inflation behaves in line with forecasts, which see CPI peaking at around 9-10%
yoy in early-2022. However, risks around the inflation profile are higher than usual given the
uncertain impact of the government’s “Inflation Shield”, which we expect to temporarily reduce
CPI inflation in the coming months (due to cuts in VAT on food and fuels), but may push
inflation higher when VAT rates are normalised. This may contribute to higher than normal
inflation volatility and is on top of the already large uncertainties regarding the outlook for core
inflation given an increasingly tight labour market and spill-over effects from the recent surge in
commodity prices.
Poland’s real yields are
among the lowest globally, as
inflation surged to multidecade highs
We like paying PLN 10Y IRS vs buying SAGB 2032, given that Poland and South Africa are at
the two extremes of real rates spectrum in the region. Indeed, Poland’s 10yr real yield is the
most negative at -4.6%, while South Africa’s is the most positive at 4%. This implies a very large
rate differential of over 850bp. We like paying swaps in Poland and buying bonds in South
Africa, given that bearish trades are more likely to be expressed in the swaps (bonds tend to
outperform swaps on demand from local banks and Asian investors), while in South Africa ASW
spread is very attractive both from a geographical and historical perspective (substantially
above most major EMs and well above the 5yr average).
Real yield (%)
Figure 25. Poland’s real yields are among the lowest globally, as inflation surged to multidecade highs
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
4.0
0.3
-3.4
24
1.3
-2.6
-4.6
Poland
Source: HSBC, Bloomberg
0.9
Czech R.
Hungary
Mexico
Russia
Brazil
S. Africa
Fixed Income ● Rates
8 February 2022
Malaysia
Mildly bearish
Policy tightening expectations in Malaysia have stayed relatively stable in the recent period,
despite the sharp rise in expectations elsewhere, particularly in the US. At this juncture, 1yr
swap pricing is implying the possibility of two rate hikes in the second half of this year, which is
consistent with HSBC’s house view. It is reasonable to assume that Malaysia’s central bank is
giving due consideration to the economic impact of the severe flooding in December and the
additional uncertainty caused by the Omicron variant. Yet, there is no strong case for a
reduction in policy tightening expectations as Malaysia’s mobility data has stayed resilient in
recent weeks (Figure 25). An earlier start to the policy normalisation cycle, for example in Q2, is
not fully in the price. We therefore do not see downside room for front-end rates in Malaysia and
maintain a curve flattening view via buying 15yr MGS and paying 2yr IRS.
Figure 26. Southeast Asia mobility levels have been resilient despite the rise in Omicron
cases
SG
TH
Jan-22
Dec-21
Nov-21
Oct-21
Sep-21
Jul-21
Aug-21
Jun-21
Apr-21
May-21
Mar-21
Jan-21
ID
Feb-21
Dec-20
Nov-20
Oct-20
Sep-20
Aug-20
Jul-20
Jun-20
Apr-20
May-20
Mar-20
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
Feb-20
%change vs median of 3 Jan- 6 Feb 2020
Pin Ru Tan
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited,
Singapore Branch
pin.ru.tan@hsbc.com.sg
+65 6658 8782
MY
Source: Google, HSBC
25
Fixed Income ● Rates
8 February 2022
Pin Ru Tan
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited,
Singapore Branch
pin.ru.tan@hsbc.com.sg
+65 6658 8782
Thailand
Mildly bearish
Thailand government bonds have underperformed regional peers over the past month, driven
by the lack of domestic investor demand during a period of rising US rates. Local asset
management companies have turned to being net sellers, reducing their bond position by
Hazel Lai
Associate
THB33bn since the start of the year. On the contrary, foreign inflows have been relatively
The Hongkong and Shanghai Banking Corporation Limited
robust. Foreign investors increased their position by THB40bn in January, but mostly into shorthazel.k.h.lai@hsbc.com.hk
+852 2288 7467
dated bonds. One of the key trading themes for Thailand rates this year is the relatively sharper
rise in bond supply compared with peers. We had expressed this view via paying THB-SGD10yr
IRS/OIS spread but closed this trade idea on 20 Jan 2022. The spread has widened over the
last two months and we expect bond supply pressure to be moderate in the coming weeks,
rising again only in March and April when the new long-dated amortised bond syndication and
bond switch are likely due. Our other consideration for closing the trade is that trading liquidity in
the THB IRS market is likely to decline progressively as, based on the THBFIX-THOR transition
timeline proposed by the Bank of Thailand (BoT), local banks are not allowed to undertake new
positions referencing THBFIX from July 2022.
We expect BoT to be the last
to raise rates among peers
Further build-up in bond
pressure towards March
Meanwhile, due to the suspension of the Test & Go scheme since 22 December, tourist arrival
growth has stagnated. Arrivals amounted to 260,000 in December and 185,000 in January. The
government has reopened its border on 1 February and resumed the Test & Go scheme, but
with the global rise in COVID-19 cases, the tourism recovery is likely to be very subdued.
Currently, the number of daily new COVID-19 cases has jumped to an average of 9,200 in the
first week of February, compared to an average of 5,700 cases per day in early January. If this
trend continues, social restrictions could be further tightened, dragging down local mobility.
Therefore, we expect the BoT to be amongst the last to lift off in Asia, allowing front-end THB
yields to be better anchored than peers.
Gross government bond supply is at THB260bn for Jan-Mar 2022, close to the issuance of
THB273bn in the previous quarter. As there are no bond maturities this quarter, net supply is at
THB260bn, up from THB133bn in the previous quarter. 10+yr supply will account for 53% of the
total supply this quarter, up from 51% and 33% in the previous two quarters. We expect to see
further bond supply pressure to build towards March, ahead of the new 25-45yr amortised bond
syndication and potential bond switch in Q2.
Figure 27. Lingering bond supply pressure
80
70
THBbn
60
50
40
30
20
10
0
3Y
Source: BoT, HSBC
26
5Y
10Y
Q1 FY22
15Y
20Y
30Y
Q2 FY22
50Y
Fixed Income ● Rates
8 February 2022
Himanshu Malik, CFA
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited
himanshu1malik@hsbc.com.hk
+852 3941 7006
Korea
Mildly bullish
The Bank of Korea (BoK) continues to lead the policy tightening cycle in EM Asia, delivering its third
policy rate hike since July at the 14 January MPC meeting and taking the policy rate to 1.25%.
However, we favour the front-end of the both cash and swap curves, considering our view that the
BoK’s tightening cycle is unlikely to advance as aggressively as the rates market appears to be
pricing in - i.e. more than three additional hikes over the next 12 months. The change of leadership of
the BoK and presidential elections on 9 March are also likely to delay further tightening in 1H and we
believe the BoK is likely to remain in wait-and-watch mode for some time, monitoring the impact of
past hikes. We maintain steepeners on the swap curve, i.e. pay KRW5Y5Y vs receive KRW1Y1Y
ND IRS.
The latest policy meeting has also placed a question mark on our expected terminal rates, with the
BoK governor stating monetary policy conditions will not be considered tight even if policy rates are
at 1.5% levels. While we had previously estimated the neutral rate for Korea to be close to 1.25%
(The BoK’s normalisation: The natural rate could be three hikes away, 8 June 2021), this was based
on the assumption that underlying inflation and potential GDP growth remains at 2%. A higher
terminal rate above neutral rate is therefore possible, especially considering that the central bank
expects inflation to stay in the 3% range for a considerable time.
The gross issuance of Korea Treasury Bonds (KTBs) is likely to rise to close to KRW178-180trn
following the latest supplementary budget, which is similar to gross KTBs issuance of KRW180.5trn
in 2021. We expect KTBs issuance to be front-loaded, similar to last year (61% of issuance was
done in 1H in 2021) which would mean that monthly KTBs issuance via competitive/non-competitive
bids will be around KRW15-18trn. Moreover, the MOEF plans to increase the issuance in long-dated
tenors of 20-50Y maturities from 25-35% in 2021 (2021 actual was 34.4%) to 35-45% in 2022.
Assuming 60% of issuance is planned in 1H 2022 and 40% of issuance is scheduled in 20-50Y
segment, this means almost KRW42-43trn of KTBs supply in 20Y and longer tenor. However, in
order to ease supply concerns, the BoK announced a buyback plan in February 2022 to purchase
KRW2trn of KTBs. Nevertheless, we believe that supply strains could emerge in the KTBs market,
especially in the event of any moderation in demand from the insurance sector, which has bought a
total of KRW77trn of government bonds over the past two years in 2020 and 2021.
Figure 28: Major buyers in KTB Market
25
3.0
20
2.5
15
2.0
10
1.5
5
Yield (%)
Gross monthly investments (KRWtrn)
Plans to increase the
issuance in long-dated tenors
1.0
0
-5
Insurance
Investment trusts
Funds
Foreigners
10Y KTBs (RHS)
-10
0.5
0.0
Jan-20
Mar-20 May-20
Jul-20
Sep-20 Nov-20
Jan-21
Mar-21 May-21
Jul-21
Sep-21 Nov-21
Source: Check, HSBC
27
Fixed Income ● Rates
8 February 2022
Andean markets
Mario Robles
Head of LatAm Rates Strategy
HSBC Securities (USA) Inc.
mario.robles@us.hsbc.com
+1 212 525 4119
We acknowledge the contribution of Rizwan
Ansari to this section
Colombia
Mildly Bearish
Colombian consumer price inflation accelerated faster than expected last month, increasing the
pressure on central bank to continue raising interest rates. Market expectations of inflationary
pressure may be sustained during the months ahead on the back of an increase in minimum
wages and a rise in gasoline prices. The country has further initiated a series of measures to
combat inflation which has surged to 6.94% in January by cutting costs of agricultural inputs, and
reducing tariffs on agricultural imports. Meanwhile, markets have priced in the increased sociopolitical volatility with a sharp sell-off (c. 80bps) in the 10y local bond yield year-to-date. The
country heads for the first round of the presidential election at end-May with the possible
electoral scenarios generating a sell-off in broader markets. Left-leaning Gustavo Petro remains
the front-runner, with his policy agenda generating unease among investors. We believe rates
should incorporate some degree of political risk, which indeed continues to build up. There are
also other electoral scenarios which can help us define whether there is value or not: 1) polls are
correct, market requiring an additional yield premium to handle the policy risk ahead; 2) polls are
correct, but Petro adopts a more pragmatic approach resulting in a less adverse policy proposition for
investors; 3) polls are wrong, resulting in markets unlocking value in Colombia.
Short-dated yields: In a surprising move, the central bank hiked rates by 100bp during the
monetary policy meeting on the back of upward pressures on prices. Interestingly, out of the
seven members of the board, five central bank board members voted for a 100bp hike, while
the other two sought a 75bp hike. Moreover, this has been the largest rate hike in almost two
decades, taking the monetary policy rate to 4%. Although markets had somewhat partially been
pricing this move (86bp hike priced-in before the meeting), the larger than expected hike could
likely result in the front-end of the curve flattening more in order to accommodate the tighter
monetary policy conditions. We believe the move to raise interest rates by 1% comes primarily
on the back of rising inflation expectations in the medium term and well above the central bank’s
target level of 3%. Besides, we expect the central bank to continue to hike in line with the
market implied path (Figure 29). In addition, diminishing monetary stimulus and increasing
political uncertainty may result in an additional yield premium being required before markets see
rate levels as attractive again.
Long-dated yields: The country issued a new TES bond maturing in 2042, offering COP0.65trn
of the securities to investors. The issuance is in line with the country’s aim to issue more in the
long end of the curve this year, thereby increasing duration. We expect the front end of the
curve to continue flattening to accommodate tighter monetary policy conditions, while the longer
end will reflect the political and structural risk ahead.
Figure 29. Market implied path of 3M rate shows aggressive tightening
Source: Bloomberg, HSBC
28
Fixed Income ● Rates
8 February 2022
Chile
Neutral
Local rates rallied recently following President-elect Boric’s cabinet appointments. The choice of
Mario Marcel as Finance Minister, in particular, provided relief to fixed income markets. Mr
Marcel is a well-regarded economist and, as President of the BCCh, he helped the economy
weather the pandemic and worked to minimise the impact of pension fund withdrawals on
financial markets. This was a pragmatic move by Mr Boric and a positive signal for CLP fixed
income, but this good news is likely already in the price now. In fact, we think much of the recent
optimism is already reflected in market pricing such that the balance of risks is now skewed
towards market-negative developments in this respect. We also reiterate that despite the
cabinet appointments, Mr Boric is still seeking structural changes in the economy that may
demand additional permanent expenditure. In addition, there remains a question mark over the
future of the private AFP pension system. Fiscal consolidation then is still a concern over the
medium term, and this should filter into long-dated tenors, keeping us cautious on duration and
positioned for a steeper local yield curve.
Short-dated yields: The BCCh accelerated the pace of tightening in January with a 150bp hike.
The market has since reassessed the path for the policy rate – a conclusion priced for May
means we are now quite close to the terminal rate. There is room to fade some of the monetary
premium at the front-end, and we prefer to do this via curve trades like a 2s10s Camara
steepener.
Long-dated yields: Long-dated tenors should be more sensitive to the underlying structural and
fiscal risks in the months ahead. The constitutional redraft, which could well redefine the
country’s macro framework, is underway. We are beginning to get some information on the
areas under discussion by the committees, and further updates here should be watched closely.
Developments that the market views unfavourably, for example recent headlines related to the
nationalisation of copper mines and scrapping of water rights, could act as catalysts for a
steeper curve (Bloomberg, 3 February 2022). Potential changes to the AFP system, driven by
either the constitutional assembly or by Mr Boric’s new government, will also be key for local
fixed income, particularly if it impacts demand for long-dated securities. We saw early signs of
this with the c. USD49bn of pension withdrawals over the past 18 months. The balance of risks
suggests long-dated tenors should underperform as investors demand additional compensation
for taking duration risk
Figure 30. Fiscal deterioration still a risk
45
40
35
30
% of GDP
Melissa McCallum
Strategist
HSBC Bank plc
melissa.mccallum@hsbc.com
+44 20 7991 5919
25
20
15
10
5
0
12
13
14
15
16
17
18
19
20
21e
22e
23e
24e
25e
26e
Central govt gross debt
e-IMF projections
Source: Bloomberg, HSBC
29
Fixed Income ● Rates
8 February 2022
Frontier markets
Mario Robles
Head of LatAm Rates Strategy
HSBC Securities (USA) Inc.
mario.robles@us.hsbc.com
+1 212 525 4119
Argentina
Bearish
While there have been indications that Argentina and the IMF are making progress in deciding
when the country may achieve a balanced primary budget and adjust other policy variables,
keep in mind that if this process were to move in the right direction, a full agreement with many
moving political parts is still required. We think that the government is likely to continuously
make an evaluation of what is economically possible, but at the same time politically feasible
too. Given this constant trade-off, we expect a definitive (and full) IMF agreement to be
impacted by political and social forces, so as to allow the administration to try to keep some
control over the speed and scope of the adjustment process if possible.
The economic policy mix is likely to continue favouring some economic variables over others,
with those less favoured most likely be used as “adjustment valves”. We see inflation as most
likely to remain in this camp (Figure 31) and to a lesser extent, FX. We continue to be of the
view that inflation is more easily tolerated by the government’s political and economic reaction
function than abrupt changes to FX and capital controls given the effects of the latter on shortterm economic activity levels. In light of that, we continue to see weak demand for ARSdenominated fixed income assets. In relative terms, at this point we see less pressure on hardcurrency-denominated fixed income versus CER-linked (inflation protected) instruments given
the already lower valuation dynamics in hard currency assets, though both these instruments
likely represent a better defensive play than ARS-denominated fixed income.
A realistic (if limited) compromise with the IMF should be better than no agreement at all
If only a lacklustre agreement is achieved, it could cap the potential gains that fixed income
assets (even hard currency ones) could reflect in the medium term, but still help to dissipate
worst case scenarios, at least for now. In the absence of a definitive agreement with the IMF,
markets could delay hope until we have a better understanding of what the 2023 presidential
race may look like and, of course, induce economic imbalances that may be hard to control.
Figure 31. Inflation may resurface as the policy mix becomes more distortionary
Source: Bloomberg, HSBC
30
Fixed Income ● Rates
8 February 2022
Bearish
We remain bearish on Sri Lanka rates against the backdrop of fragile fiscal and external sector
outlook, high inflation and expectations of large bond supply in 2022. Inflation has been rising
sharply since September with latest Colombo CPI inflation reaching 14.2% in January while the
National CPI inflation was recorded at 14.0% in December. The annual average inflation has
increased to 6.9% in January 2022 vs 6.0% in December 2021, clearly above the central bank
mandate of average inflation targeting. The core inflation increased significantly by 1.6ppt to
9.9% in December from 8.3% in December while food inflation touched 25% in January. Such a
steep rise in inflation has eroded the real yield on offer on SRILGBs pushing it into negative
territory. Tourism, which had remained a major contributor to national revenue and GDP, further
declined in 2021 compared to 2020. However, lately there have been signs of a revival with an
increase in footfall in December 2021. Inflows from workers’ remittances declined in 2021 with
overall inflows less than 2020. In addition, International reserves, which were valued at
USD3.1bn in December 2021, are not enough considering the hefty trade deficit (USD7bn for
Jan-Nov period) and USD1.5bn of external debt maturing in 2022.
The Central Bank MPC hiked policy rates by 50 basis points in its January meeting after
average annual inflation reached 6% in December 2021, which is the upper threshold of the
inflation band. Minutes of the January meeting reflect that the MPC has pivoted from its dovish
stance with expectations of further hikes in upcoming meetings to restore macroeconomic
stability. We believe that the CBSL has been behind the curve as inflation has been so high and
will be difficult to contain considering the current economic situation
Since the beginning of 2022, gross issuance of treasury bills has been LKR422bn while
Treasury bonds has been only LKR137bn, which amounts to 5.78% of the total gross
requirement in 2022. Interestingly, 98% of treasury bills are issued in 3-month tenor while 81%
of the total issuance of treasury bonds is concentrated in the 10Y segment. The current LKR
local yield curve is steepest in the 3m-3Y year segment while the curve in long-dated tenors (37yr) is mostly flat (see figure 32). The 10Y segment has sold off 50 basis points since the policy
rate hike, while we expect a further build-up of term premium considering the inflationary
pressure and macro instability.
Figure 32: Yield curve has been steep in 3m-3Y segment while 10Y yields have increased
the most since 20 January MPC review
60
13
50
12
40
30
11
20
10
10
0
Yield (%)
Soumya Mohanty
Associate
Bangalore
Sri Lanka
Change in yield (bp)
Himanshu Malik, CFA
Asia-Pacific Rates Strategist
The Hongkong and Shanghai
Banking Corporation Limited
himanshu1malik@hsbc.com.hk
+852 3941 7006
9
-10
-20
8
3M
6M
1Y
2Y
3Y
4Y
5Y
Change in yields since 20-Jan-2022
6Y
7Y
8Y
9Y
10Y
Current Yield (RHS)
Source: Refinitiv, HSBC
31
Fixed Income ● Rates
8 February 2022
Recent EM publications
Title
EM Rates
CEEMEA Rates: Taylor returns
LatAm Rates Strategy: Flat yield curves may start to run out of fuel
Asia Pacific Rates: A roar rather than a rout
China Rates: Off to a roaring start
Recap of EM Rates publications: Top views and trades for 2022
CEEMEA Rates in 2022: Trading real rates divergence
EM Rates 2022: Pockets of value
Asia-Pacific Rates: 2022 Policy path divergence
LatAm Rates in 2022: Conditional value
EM Rates: The rise of risk premium
China’s long-awaited WGBI inclusion: Last piece of the puzzle
Asia-Pacific Rates: Irrational policy expectations
China Rates: The liquidity anchor
CEEMEA Rates: Mea Culpa
India Bonds: Inclusion effects: India bonds inching closer to indexation
EM Rates: Challenges and changes to term premium
China’s WGBI inclusion: A bumpy start
LatAm Rates Strategy: Testing the Limit
Southbound Bond Connect: China opens up further
Asia Pacific rates :Price pressures peak but supply fears lingers
CEEMEA Rates: Neutral vs Terminal
EM Rates: Tuned to Taper talks: prefer low-yielding markets
EM Macro
Egypt: More signs of strains
Argentina and the IMF: A political setback right at the start
Poland (2021 GDP flash): Growth beats expectations
Argentina and the IMF: Country reaches understanding towards new agreement
China green investment: Carbon pricing an accelerator
Turkey: A new policy goal for the CBRT: “Lira-isation”
India: Keep calm and consolidate
Chile: Even faster tightening, bringing forward rate cuts
Russia: RUB weakness set to lead to a larger rate rise
Mexico CPI (H1 Jan): Core inflations starts 2022 under pressure
Bank Indonesia: Time for exit policies
Turkey: On hold, for now
South Africa: Inflation at the top of SARB’s target range
China Inside Out: Why capital returns are set to rise
Korea extra budget #1: The earliest since 1951, funded by larger deficit
China money supply (December 2021): Loosening up a bit
CEEMEA Economics quarterly: Playing defence as pressure builds
South America outlook 2022: Inflation and politics center stage
Emerging markets in 2022: Darkest before dawn
EM FX
FX market: January 2022
Emerging Markets FX Roadmap: Eye of the tiger
Asian FX Focus: INR: Can it bat above average?
TRY: Stable for now
RUB: FX weakness and policy flexibility
BRL: Frisky, but still risky
Asia FX Focus: SGD: A perfect storm… again?
CEEMEA FX: CEE, RUB on the move
Currency Outlook: Cycles, brakes and crashes
RUB: Attractive ruble
FX Market: December 2021
Currency outlook: Dollar in the driver’s seat
EM Reference Guides
Emerging Markets Rates Guide 2022
Global EM Debt Supply Outlook: Bond supply strains easing
Sukuk Guide
Source: HSBC
32
Date
07 Feb 2022
28 Jan 2022
20 Jan 2022
17 Jan 2022
05 Jan 2022
13 Dec 2021
02 Dec 2021
24 Nov 2021
18 Nov 2021
4 Nov 2021
27 Oct 2021
21 Oct 2021
18 Oct 2021
15 Oct 2021
12 Oct 2021
07 Oct 2021
29 Sep 2021
28 Sep 2021
16 Sep 2021
16 Sep 2021
10 Sep 2021
02 Sep 2021
01 Feb 2022
01 Feb 2022
31 Jan 2022
28 Jan 2022
28 Jan 2022
27 Jan 2022
27 Jan 2022
26 Jan 2022
25 Jan 2022
24 Jan 2022
21 Jan 2022
20 Jan 2022
19 Jan 2022
18 Jan 2022
14 Jan 2022
12 Jan 2022
11 Jan 2022
11 Jan 2022
10 Jan 2022
01 Feb 2022
28 Jan 2022
27 Jan 2022
24 Jan 2022
24 Jan 2022
21 Jan 2022
20 Jan 2022
17 Jan 2022
13 Jan 2022
10 Jan 2022
04 Jan 2022
17 Dec 2021
25 Jan 2022
13 Jan 2022
30 Jul 2015
Fixed Income ● Rates
8 February 2022
Table 6. Selected open trade ideas
Instrument
Asia Pacific
Pay India INR 5Y NDOIS
Entry date Entry Target
level
Stop Current
20-Jan-22 5.68%
6.20%
80bp
50bp
52bp
Rec
Hong Kong HKD 3m fwd, 10Y 20-Jan-22 62bp
IRS
HKD 3m fwd, 2Y IRS
Buy
Pay
Malaysia MGS4.254 May’35
Malaysia MYR 2Y NDIRS
24-Nov-21 146bp
100bp
165bp
135bp
Pay
Rec
Korea KRW5Y5Y ND IRS
Korea KRW1Y1Y ND IRS
19-Nov-21 -29bp
15bp
-50bp
-20bp
Rec
Korea KRW 2Y NDIRS
21-Oct-21 55bp
90bp
40bp
50bp
Pay
Malaysia MYR 2Y NDIRS
Buy
Indonesia IndoGB5.125
Apr’27
21-Oct-21 5.02% 4.75%^ 5.40%^
5.26%
Rec
Pay
Singapore SGD 2Y OIS
USD 2Y OIS
21-Oct-21 27bp -20bp^
-12bp
Pay
CEEMEA
Buy Russia RFLB6.9 Jul’31
02-Dec-21 8.37%
Buy
Pay
South Africa SAGB8.25
Mar’32
Poland PLN 10Y IRS
Rec
Pay
Israel ILS 5Y IRS
USD5Y IRS
5.50% 5.85%]
10bp^
6.50% 10.00%^
Perf Rationale and risks
(bp)
Trade
owner
+17bp Rationale: Supply strains, inflation risks and higher oil prices all
point to risk of overshoot in rates
Risks: Dovish RBI
HM
-10bp Rationale: Forward curve is too flat and Hibor rates are likely to
remain relatively more stable with ample liquidity
Risks: Bear flattening of US rates curve
HM
+11bp Rationale: Policy normalisation could come earlier than
expected but long-end bonds should see steady investor
demand
Risks: Growth setback resulting in reduced tightening
expectations
PT
+9bp Rationale: Slower pace of policy hikes should lead to a steeper
curve
Risks: More hawkish rhetoric by the Bank of Korea
-5bp Rationale: Likely convergence in monetary policy expectations
for both countries
Risks: Speedbumps in Malaysia’s reopening path
HM
-24bp Rationale: Low inflation and strong currency delay the need for
monetary easing
Risks: Rise in banks’ loan-to-deposit ratio
+39bp Rationale: Excess SGD liquidity tightening priced into front-end
Risks: Sharp rise in SGD loan-to-deposit ratio
PT
PT/HM
PT
9.41% -104bp Rationale: Longer-dated OFZs to start pricing in a monetary
policy reversal
Risks: Upside inflation surprises, sharp decline in oil prices
RB
02-Dec-21 7.25% 5.50%^ 6.50%^
5.78% +147bp Rationale: Extreme real interest rates differential between
South Africa and Poland to compressshort
Risks: Increase in risk aversion or deterioration in fiscal outlook
or upside inflation surprises in SA
RB
24-Apr-20
-59bp
+50bp Rationale: Real rate spread set to reach 250bp; too much
premium
Risk: Fiscal deterioration worsens beyond ‘adverse’ and curve
bows out
RB
-9bp -100bp -40bp^
LatAm
Pay
Rec
Chile CLP 10Y Camara IRS
Chile CLP 2Y Camara IRS
04-Feb-22 -43bp
17bp
-73bp
-46bp
-3bp Rationale: Long-dated tenor to reflect fiscal concerns,
conditions in place for decompression of front-end premiums
Risk: Hawkish BCCh
MR/MM
Pay
Rec
Mexico MXN 10Y TIIE IRS
Mexico MXN 5Y TIIE IRS
29-Nov-21 21bp
80bp
-10bp
15bp
-6bp Rationale: 10-5Y segment is too flat; risks on the horizons for
investors to be compensated for taking the duration exposure
Risk: Faster-than-expected rate hikes
MR
Pay
Rec
Brazil 5Y PRE-DI
Brazil 2Y PRE-DI
18-Nov-21 -19bp
150bp -100bp
-17bp
+2bp Rationale: Growth slowdown and lagged effects of monetary
policy could allow an inflation (lower) turning point, fiscal
prospects may have already signal the extent of expected
deterioration
Risk: Inflation fails to react to lower levels/fiscal slippage
continues and CB validates with a higher ON Selic rate
MR
Note: This table includes all current open trade ideas. To show the history of our trade ideas, once a trade idea is closed, it moves to the table of closed trade ideas below
^Revised target and stop loss
Key to trade owners: PT = Pin-Ru Tan, RB = Radoslaw Bodys, MR = Mario Robles, HM = Himanshu Malik, ADS = André de Silva, GW = Grace ZJ Wang
Source: HSBC
33
Fixed Income ● Rates
8 February 2022
Table 7. Closed trade ideas in the last 12 months
Instrument
Asia Pacific
Entry date
Entry level
Target
Stop
Closed
Exit date
Perf (bp) Trade owner
24-Nov-21
46bp
70bp
30bp
30bp
04-Feb-22
-16bp HM
Pay
Rec
Hong Kong HKD 2Y1Y IRS
Hong Kong HKD 1Y1Y IRS
Pay
Rec
Thailand THB 10Y ND IRS
Singapore SGD 10Y OIS
24-Nov-21
6bp
45bp
-15bp
24bp
20-Jan-22
+18bp PT
Rec
Pay
India INR 5Y ND OIS
India INR 2Y ND OIS
24-Nov-21
60bp
10bp
75bp
68bp
20-Jan-22
-8bp HM
Buy
Philippines RPGB3.375 Apr’26
22-Nov-21
4.25%
3.50%
4.60%
3.50%
5-Jan-22
Rec
Pay
Singapore SGD 5-10 OIS
USD 5-10Y OIS
7-Oct-21
0bp
-10bp
7bp
-3bp
24-Nov-21
3bp PT
Pay
India INR 5Y ND OIS
16-Sep-21
5.14%
5.75%
5.30%
5.53%
24-Nov-21
39bp HM
Buy
Mainland China CGB2.69 Aug’26
21-Oct-21
2.85%
2.65%
3.0%
2.72%
24-Nov-21
13bp PT
Rec
Pay
Hong Kong HKD 1y1y IRS
Hong Kong HKD 1Y IRS
21-Oct-21
66bp
40bp
80bp
80bp
15-Nov-21
-14bp HM
Pay
Rec
Pay
Hong Kong HKD5Y5Y IRS
USD5Y5Y IRS
Thailand THB 5-10Y NDIRS
20-May-21
-13bp
10bp
-25bp
10bp
21-Oct-21
+23bp HM
7-Oct-21
57bp
65bp
53bp
53bp
21-Oct-21
Buy
Philippines RPGB3.625 Apr’28
04-Oct-21
3.98%
3.65%
4.30%
4.30%
14-Oct-21
-32bp ADS/GW
Buy
Mainland China
CGB3.72 Apr’51
23-Jul-20
3.65%
3.20%^
3.45%^
3.45%
11-Oct-21
+20bp PT
Buy
Rec
Pay
Indonesia IndoGB7.5 Apr’40
Hong Kong HKD 2Y,3M fwd IRS
Hong Kong HKD 10Y,3M fwd IRS
16-Sep-21
19-Aug-21
6.86%
86bp
6.50%
110bp
7.15%^
75bp
7.15%
110bp
11-Oct-21
11-Oct-21
-29bp PT
+24bp HM
Pay
Rec
Thailand THB 5-10Y NDIRS
USD 5-10Y OIS
24-Sep-21
22bp
40bp
5bp
13bp
7-Oct-21
-9bp PT
Pay
Rec
Singapore SGD 5Y OIS
SGD 10Y OIS
16-Sep-21
42bp
30bp
47bp
46bp
7-Oct-21
-4bp PT
Buy
Malaysia MGS2.632 Apr’31
Rec
Pay
Thailand THB1Y1Y IRS
Taiwan TWD1Y1Y IRS
Buy
Pay
Rec
Buy
Pay
+75bp ADS/GW
-4bp PT
2-Jul-21
3.27%
3.00%
3.50%
3.44%
7-Oct-21
-17bp PT
30-Jul-21
-2bp
-30bp^
-2bp^
-10bp
16-Sep-21
+8bp PT
South Korea KTB1.125 Jun’24
Singapore SGD10Y IRS
USD10Y IRS
India IGB5.85 Dec’30
5Y ND OIS
23-Jul-21
26-Nov-20
1.39%
1bp
1.25%
30bp
1.50%
-20bp^
1.50%
25bp
16-Sep-21
16-Sep-21
-11bp HM
+24bp PT
17-Jun-21
83bp
50bp
100bp
100bp
23-Jul-21
-17bp HM
Rec
Rec
Thailand THB5Y NDIRS
South Korea KRW1Y1Y NDIRS
7-May-21
12-Jul-21
0.98%
1.48%
0.80%
1.25%
1.07%
1.60%
0.80%
1.60%
23-Jul-21
19-Jul-21
+18bp PT
-12bp HM
Rec
8-Jun-21
42bp
15bp
60bp
26bp
12-Jul-21
+16bp HM
Pay
Pay
Pay
Rec
Rec
Pay
Rec
Sell
South Korea
KRW5Y5Y IRS
KRW5Y IRS
Mainland China CNY2Y NDIRS
Malaysia MYR10Y NDIRS
MYR5Y ND IRS
Thailand THB10Y NDIRS
THB5Y ND IRS
South Korea KRW3Y IRS
3Y KTB
12-Apr-21
20-May-21
2.58%
14bp
2.73%
0bp
2.45%^
20bp
2.45%
8bp
8-Jul-21
2-Jul-21
-13bp PT
+6bp PT
20-May-21
11bp
0bp
18bp
6bp
28-Jun-21
+5bp HM
Pay
Rec
India INR 5Y ND OIS
1Y1Y ND OIS
1-Apr-21
45bp
70bp
35bp
40bp
17-Jun-21
-5bp HM
34
Fixed Income ● Rates
8 February 2022
Table 7. Closed trade ideas in the last 12 months
Instrument
Entry date
Entry level
Target
Stop
Closed
Exit date
Rec
Singapore SGD2Y IRS
20-May-21
44bp
32bp
49bp
39bp
7-Jun-21
Perf (bp) Trade owner
+5bp PT
Pay
Rec
South Korea KRW10Y NDIRS
USD10Y IRS
15-Apr-21
-2bp
20bp
-10bp
20bp
28-May-21
+22bp HM
Rec
Hong Kong HKD3s5s10s IRS fly
18-Mar-21
-17bp
-30bp
-10bp
-26bp
20-May-21
+9bp HM
Pay
Singapore SGD-THB 2Y IRS
8-Apr-21
-12bp
+10bp
-12bp
-3bp
7-May-21
+9bp PT
Rec
Korea KRW1Y1Y NDIRS
18-Mar-21
1.31%
1.10%
1.25%
1.25%
23-Apr-21
+6bp HM
Rec
Thailand THB-SGD 10Y IRS spread
4-Mar-21
11bp
-15bp
0bp
0bp
8-Apr-21
+11bp PT
Pay
India 5Y ND OIS
8-Jun-20
4.15%
5.40%
5.10%
5.40%
15-Mar-21
+125bp HM
Buy
Malaysia MGS3.955 Sep’25
18-Feb-21
2.30%
1.90%
2.50%
2.50%
15-Mar-21
-20bp PT
Buy
Philippines RPGB3.625 Sep’25
15-Oct-20
2.66%
2.40%
2.95%
2.95%
15-Mar-21
-29bp ADS
Pay
Rec
India INR 5Y ND OIS
INR 1Y1Y ND OIS
18-Feb-21
58bp
80bp
45bp
45bp
4-Mar-21
-13bp HM
Buy
Pay
Mainland China 2Y CGB
CNY2Y NDIRS
26-Nov-20
39bp
0bp
55bp
13bp
4-Mar-21
+26bp PT
Pay
Rec
Buy
Korea KRW10Y ND IRS
Thailand THB 10Y ND IRS
Thailand ThaiGB3.775 Jun’32 (LB326A)
15-Jan-21
9bp
35bp
0bp
0bp
22-Feb-21
15-Jan-21
1.47%
1.25%
1.60%
1.60%
22-Feb-21
-13bp PT
Pay
Rec
Rec
Pay
Hong Kong HKD10Y IRS
HKD3Y IRS
USD10Y IRS
USD3Y IRS
15-Jan-21
-20bp
0bp
-30bp
-14bp
18-Feb-21
+6bp HM
Rec
Korea KRW1Y1Y IRS
16-Sep-20
88bp
80bp
105bp
105bp
18-Feb-21
-17bp HM
Buy
Malaysia MGS2.632 Apr’31
15-Oct-20
2.60%
2.35%
2.80%
2.80%
18-Feb-21
-20bp PT
02-Dec-21
-41bp
25bp
-90bp
-90bp
07-Feb-22
-49bp RB
02-Dec-21
-6bp
60bp
-30bp
-30bp
5-Jan-22
-24bp RB
-9bp HM/PT
CEEMEA
Rec
Czech Republic CZK 6X9 FRA
Pay
Czech Republic CZK 1Y1Y IRS
Rec
Poland PLN 2Y IRS
Pay
Poland PLN 10Y IRS
Pay
Poland PLN5Y5Y IRS
Rec
USD5Y5Y IRS
Buy
Russia OFZ5.9 Mar’31
13-Nov-20
30bp
150bp^
60bp^
102bp
02-Dec-21
+72bp RB
14-May-21
7.21%
5.75%^
7.75%^
7.75%
29-Oct-21
-54bp RB
Sell
Poland PLN 3x6 FRA
10–Sep-21
0.45%
0.25%
0.85%^
0.85%
07-Oct-21
-40bp RB
Sell
Buy
Poland PLN 12X15 FRA*
Romania ROMGB3.65 Sep’31
14-May-21
16-Aug-21
0.73%
3.78%
0.40%^
3.25%
1.50%^
4.20%
1.50%
4.20%
07-Oct-21
4-Oct-21
-77bp RB
-59bp RB
Rec
Pay
Rec
Czech Republic CZK 5Y5Y IRS
EUR 5Y5Y IRS
South Africa ZAR1Y1Y IRS
5-Mar-21
161bp
100bp^
150bp^
150bp%
16-Aug-21
+11bp RB
12-Mar-21
5.06%
4.50%^
5.25%^
5.25%
2-Jul-21
-19bp RB
Pay
Rec
Hungary HUF10Y IRS
HUF5Y IRS
12-Feb-21
51bp
85bp
30bp
30bp
21-Jun-21
-21bp RB
Rec
Poland PLN2Y2Y IRS
12-Mar-21
138bp
100bp
170bp
170bp
3-May-21
-32bp RB
Buy
South Africa SAGB8.875 Feb’35
(R2035)
3-Dec-20
10.78%
9.75%
10.75%
10.68%
12-Mar-21
+10bp RB
Pay
Czech Republic 5Y CZK IRS
1-Feb-21
1.08%
1.50%
0.65%
1.50%
4-Mar-21
+42bp RB
Buy
Buy
Romania ROMGB4.75 Oct’34
Russia OFZ4.5 Jul’25
11-Dec-20
28-Jul-20
3.70%
5.02%
3.00%
3.50%
4.10%
6.00%
4.10%
6.00%
26-Feb-21
26-Feb-21
-40bp RB
-98bp RB
Buy
Israel ILGOV3.75 Mar’47
13-Nov-20
1.90%
1.50%
2.10%
2.10%
19-Feb-21
-20bp RB
35
Fixed Income ● Rates
8 February 2022
Table 7. Closed trade ideas in the last 12 months
Instrument
Entry date
Entry level
Target
Stop
Closed
Exit date
Perf (bp) Trade owner
28 Sep 21
20-Oct-21
4.13%
45bp
5.53^%
0bp
4.90^%
65bp
4.90%
34bp
12-Nov-21
12-Nov-21
+77bp MR/MM
+11bp MR/MM
26 Aug 21
46bp
100bp
25bp
25bp
22-Oct-21
-21bp MR
3 Sep 21
548bp
450bp
600bp
600bp
1-Oct-21
-52bp MR
26-Aug-21
3.76%
4.60%^
4.15%^
4.60%
13-Sep-21
22-Jul-21
105bp
160bp
75bp
110bp
20-Aug-21
LatAm
Pay
Rec
Pay
Pay
Rec
Rec
Pay
Pay
Chile 2Y Camara IRS
Mexico MXN 5Y TIIE IRS
Mexico MXN 2Y TIIE IRS
Mexico MXN 10Y TIIE IRS
Mexico MXN 5Y TIIE IRS
Mexico MXN 2Y TIIE IRS
USD2Y IRS
Chile 5Y Camara IRS
Pay
Rec
Mexico 10Y TIIE IRS
Mexico 2Y TIIE IRS
Pay
Chile 10Y Camara IRS
24-Jun-21
3.9
4.65%
4.30%
4.28%
9-Jul-21
+31bp MR/MM
Rec
Pay
Rec
Brazil 2Y PRE-DI
Chile 10Y Camara IRS
Chile 5Y Camara IRS
27-May-21
27-May-21
7.08%
94bp
6.40%
135bp
7.55%
76bp
7.55%
76bp
21-Jun-21
18-Jun-21
-47bp MR
-18bp MR/MM
Pay
Rec
Chile 1Y Camara IRS
Chile 5Y Camara IRS
22-Apr-21
178bp
125bp
205bp
194bp
24-May-21
-16bp MR/MM
Pay
Rec
Mexico 10Y TIIE
Mexico 2Y TIIE
25-Feb-21
175bp
210bp
155bp
155bp
21-May-21
-20bp MR
Pay
Chile 2Y Camara
23-Nov-20
0.72%
1.65%
1.15%
1.18%
19-Apr-21
+46bp MR
Buy
Mexico Mbono8.5 Nov 2038
27-Jan-21
6.36%
5.80%
6.65%
6.65%
22-Feb-21
-29bp MR
+84bp MR/MM
+5bp MR
Note: This table includes the history of all trade ideas closed in the past 12 months. Key to trade owners: PT = Pin-Ru Tan, RB = Radoslaw Bodys, MR = Mario Robles, HM = Himanshu Malik, ADS = André de Silva, MM = Melissa
McCallum. ^Revised target/stop levels
Source: HSBC estimates
36
Fixed Income ● Rates
8 February 2022
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or
issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other
views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect
their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Andre de Silva, CFA, Pin Ru Tan, Radoslaw Bodys, Mario Robles,
Himanshu Malik, CFA, Melissa McCallum, Hazel Lai, Grace ZJ Wang, Paul Mackel, Joey Chew, Dr. Murat Ulgen, Nicholas
Smithie, Ali Cakiroglu, Wai-Shin Chan, CFA, Louisa Lam, CFA and Zoey Zhou
Important disclosures
Foreign exchange: Basis for financial analysis
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the
clients of HSBC and is not for publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to
buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document
is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives,
financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the
appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional
investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may
not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the
investment products mentioned in this document and take into account their specific investment objectives, financial situation or
particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor
may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value
that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by
exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future
results.
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
HSBC’s currency trade ideas on deliverable FX forwards (DF) or non-deliverable FX forwards (NDF) are usually identified on a
time horizon of up to three months, although HSBC reserves the right to extend this time horizon on a discretionary, trade-bytrade basis.
HSBC believes an investor's decision to buy or sell an instrument should depend on individual circumstances such as the
investor's existing holdings and other considerations. Different securities firms use a variety of terms as well as different systems
to describe their recommendations. Investors should carefully read the definitions of the recommendations used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors should
carefully read the entire research report and should not infer its contents from the recommendation. In any case, recommendations
should not be used or relied on in isolation as investment advice.
Definitions for currency trades on DFs and NDFs
Buy: refers to buying the first currency in the named pair in exchange for the second currency in the named pair.
Sell: refers to selling the first currency in the named pair in exchange for the second currency in the named pair.
37
Fixed Income ● Rates
8 February 2022
The tenor of the instrument will be denoted and will refer to a settlement date relative to the opening date of the trade idea e.g.
1m refers to a settlement date 1 month forward from the open date of the trade idea. NDF trades normally fix two working days
prior to the settlement date.
Distribution of currency trades
The nature of foreign exchange forward trade ideas is such that there will always be an equal number of buy and sell trades
(buying one currency in exchange for selling another), both outstanding and historically.
Fixed income: Basis for financial analysis
This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's
decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other
considerations.
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given
these differences, HSBC has two principal aims in its fixed income research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies in corporate credit and based
on country-specific ideas or themes that may affect the performance of these bonds in the case of covered bonds, in both cases
on a six-month time horizon; 2) to identify trade ideas on a time horizon of up to four months, relating to specific instruments,
which are predominantly derived from relative value considerations or driven by events and which, in the case of credit research,
may differ from our long-term opinion on an issuer. Buy or Sell refer to a trade call to buy or sell that given instrument; HSBC has
assigned a fundamental recommendation structure, as described below, only for its longer-term investment opportunities.
HSBC believes an investor's decision to buy or sell a bond should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of terms as well as different systems to describe
their recommendations. Investors should carefully read the definitions of the recommendations used in each research report. In
addition, because research reports contain more complete information concerning the analysts' views, investors should carefully
read the entire research report and should not infer its contents from the recommendation. In any case, recommendations should
not be used or relied on in isolation as investment advice.
HSBC Global Research is not and does not hold itself out to be a Credit Rating Agency as defined under the Hong Kong Securities
and Futures Ordinance.
Definitions for fundamental credit and covered bond recommendations
Overweight: For corporate credit, the issuer’s fundamental credit profile is expected to improve within the next six months. For
covered bonds, the bonds issued in this country are expected to outperform those of the other countries in our coverage over the
next six months.
Neutral: For corporate credit, the issuer’s fundamental credit profile is expected to remain stable for up to six months. For covered
bonds, the bonds issued in this country are expected to perform in line with those of the other countries in our coverage over the
next six months.
Underweight: For corporate credit, the issuer’s fundamental credit profile is expected to deteriorate within the next six months.
For covered bonds, the bonds issued in this country are expected to underperform those of other countries in our coverage over
the next six months.
Definitions for trades (Rates & Credit)
Buy and Sell refer to a trade call to buy or sell a bond, option on an interest rate swap ("swaption"), interest rate cap or floor,
inflation cap or floor, or Total Return Swap ("TRS"). The buyer/seller of a TRS receives/pays the total return of the underlying
instrument or index at the end of the period and pays/receives the funding leg.
Buy protection and Sell protection refer to a credit default swap (CDS): the protection buyer/seller is effectively selling/buying
the reference entity's credit risk.
Pay and receive refer to a trade call to pay or receive the fixed leg of an interest rate swap (IRS), a non-deliverable IRS, the firstnamed leg of a basis swap, the realised inflation leg of an inflation swap, or a forward rate agreement (FRA). An investor that
executes a pay or receive trade is said to be "paid" or "received."
38
Fixed Income ● Rates
8 February 2022
Payer and receiver refer to inflation caps or floors and to swaptions: a payer is an option giving the right but not the obligation to
enter a paid position in an interest rate or inflation swap, and a receiver is an option giving the right but not the obligation to enter
a received position in an interest rate or inflation swap.
ASW (also asset-swap, Buy on asset swap, Buy on an asset-swapped basis): Buy a bond packaged with a swap that is tailored
to eliminate the bond’s interest rate risk, effectively transforming the bond to a floating rate instrument whilst preserving the credit
exposure to the bond issuer.
RASW (also reverse asset-swap, Sell on asset swap, Sell on an asset swapped basis): Sell a bond packaged with a swap that is
tailored to eliminate the bond’s interest rate risk, effectively transforming the bond to a floating rate instrument whilst preserving
the credit exposure to the bond issuer.
Distribution of fundamental credit and covered bond recommendations
As of 31 December 2021, the distribution of all independent fundamental credit recommendations published by HSBC
is as follows:
Overweight
23%
(55% of these provided with Investment Banking Services in the past 12 months)
Neutral
52%
(42% of these provided with Investment Banking Services in the past 12 months)
Underweight
26%
(36% of these provided with Investment Banking Services in the past 12 months)
For the purposes of the distribution above the following mapping structure is used: Overweight = Buy, Neutral = Hold and
Underweight = Sell. For rating definitions under both models, please see "Definitions for fundamental credit and covered bond
recommendations" above.
Distribution of trades
As of 31 December 2021, the distribution of all trades published by HSBC is as follows:
Buy
74%
(41% of these provided with Investment Banking Services in the past 12 months)
Sell
26%
(51% of these provided with Investment Banking Services in the past 12 months)
For the purposes of the distribution above the following mapping structure is used: Buy/Sell protection/Receive/Buy Receiver/Sell
Payer = Buy; and Sell/Buy protection/Pay/Buy Payer/Sell Receiver = Sell. ASW is counted as a buy of the bond and a paid swap,
and RASW as a sell of the bond and a received swap. For rating definitions under both models, please see "Definitions for trades
(Rates and Credit)" above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.
Recommendation changes for long-term investment opportunities
To view a list of all the independent fundamental recommendations disseminated by HSBC during the preceding 12-month period,
and the location where we publish our quarterly distribution of non-fundamental recommendations, please use the following links
to access the disclosure page:
Clients of Global Research and Global Banking and Markets: www.research.hsbc.com/A/Disclosures
Clients of HSBC Private Banking: www.research.privatebank.hsbc.com/Disclosures
HSBC & Analyst disclosures
Disclosure checklist
Company
GOVERNMENT OF INDONESIA
GOVERNMENT OF MALAYSIA
GOVERNMENT OF SOUTH AFRICA
Ticker
Recent price
Price date
Disclosure
-
-
-
1, 2, 5, 7
2
2
Source: HSBC
1
HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2
HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3
months.
39
Fixed Income ● Rates
8 February 2022
3
At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4
As of 31 December 2021, HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5
As of 31 December 2021, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6
As of 31 December 2021, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7
As of 31 December 2021, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
8
A covering analyst/s has received compensation from this company in the past 12 months.
9
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
10
A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
11
At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
12
As of 02 Feb 2022, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
13
As of 02 Feb 2022, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or
liquidity provider in the securities/instruments mentioned in this report.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking,
sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Non-U.S. analysts may not be associated persons of HSBC Securities (USA) Inc, and therefore may not be subject to FINRA
Rule 2241 or FINRA Rule 2242 restrictions on communications with the subject company, public appearances and trading
securities held by the analysts.
Economic sanctions imposed by the EU, the UK, the USA and certain other jurisdictions generally prohibit transacting or dealing
in any debt or equity issued by Russian SSI entities on or after 16 July 2014 (Restricted SSI Securities). Economic sanctions
imposed by the USA also generally prohibit US persons from purchasing or selling publicly traded securities issued by companies
designated by the US Government as “Chinese Military-Industrial Complex Companies” (CMICs) or any publicly traded securities
that are derivative of, or designed to provide investment exposure to, the targeted CMIC securities (collectively, Restricted CMIC
Securities). This report does not constitute advice in relation to any Restricted SSI Securities or Restricted CMIC Securities, and
as such, this report should not be construed as an inducement to transact in any Restricted SSI Securities or Restricted CMIC
Securities.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company
available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for queries
regarding other research reports. In order to find out more about the proprietary models used to produce this report, please contact
the authoring analyst.
40
Fixed Income ● Rates
8 February 2022
Additional disclosures
1
This report is dated as at 08 February 2022.
2
All market data included in this report are dated as at close 04 February 2022, unless a different date and/or a specific
time of day is indicated in the report.
3
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of
Research operate and have a management reporting line independent of HSBC's Investment Banking business.
Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses
to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4
You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest
payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the
price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,
and/or (iii) measuring the performance of a financial instrument or of an investment fund.
5
As of 03 Feb 2022 HSBC owned a significant interest in the debt securities of the following company(ies): GOVERNMENT
OF INDONESIA, GOVERNMENT OF MALAYSIA, GOVERNMENT OF SOUTH AFRICA
Production & distribution disclosures
1. This report was produced and signed off by the author on 07 Feb 2022 16:37 GMT.
2.
In order to see when this report was first disseminated please see the disclosure page available at
https://www.research.hsbc.com/R/34/Lf7clxs
41
Fixed Income ● Rates
8 February 2022
Disclaimer
Legal entities as at 1 December 2020
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017/10/2021
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
Global Fixed Income Research Team
Rates
Credit
Global Head of Fixed Income Research
Steven Major, CFA
+852 2996 6590
steven.j.major@hsbc.com.hk
EMEA
EMEA
Head of UK Rates Strategy
Daniela Russell
daniela.russell@hsbcib.com
+44 20 7991 1352
Head of European Credit Research
Jonathan White
+44 20 7991 5195
jonathan.white@hsbcib.com
Credit & Green Bond Strategist
Dominic Kini
+44 20 7991 5599
dominic.kini@hsbcib.com
Chris Attfield
+44 20 7991 2133
christopher.attfield@hsbcib.com
Song Jin Lee, CFA
songjin.lee@hsbc.com
+44-20 7991 5259
Head of Covered Bond Research
Frank Will
+49 211 910 2157
frank.will@hsbc.de
Tom Russell
thomas.russell@hsbc.com
+ 44 20 3359 5666
Head of CEEMEA Rates Strategy
Radoslaw Bodys
+44 20 7991 5882
radoslaw.bodys@hsbc.com
Asia
Head of Global EM Rates Research
André de Silva, CFA
+852 2822 2217
andre.de.silva@hsbc.com.hk
Pin Ru Tan
pin.ru.tan@hsbc.com.sg
+852 3941 7006
Hazel Lai
hazel.k.h.lai@hsbc.com.hk
+852 2288 7467
Grace Wang
grace.z.j.wang@hsbc.com.hk
+852 2996 6569
Keith Chan
keithkfchan@hsbc.com.hk
+852 2822 4522
Louisa Lam
louisa.m.c.lam@hsbc.com.hk
+852 2996 6586
Helen Huang
helendhuang@hsbc.com.hk
+852 2996 6585
Reks Ng
reks.ng@hsbc.com.hk
+852 3941 7066
Cathy Cheng
cathy.l.m.cheng@hsbc.com.hk
+852 3941 1320
Multi-Asset
Multi-Asset Strategist
Max Kettner
+44 20 7991 5045
maximilian.l.kettner@hsbc.com
Americas
+1 212 525 0924
Duncan Toms
duncan.toms@hsbc.com
Head of LatAm Rates Strategy
Mario Robles
+1 212 525 4119
mario.robles@us.hsbc.com
Melissa McCallum
melissa.mccallum@hsbc.com
Head of Global Research, Asia-Pacific
Dilip Shahani
+852 2822 4520
dilipshahani@hsbc.com.hk
+65 6658 8782
Himanshu Malik
himanshu1malik@hsbc.com.hk
Head of US Rates Strategy
Larry Dyer
lawrence.j.dyer@us.hsbc.com
Asia
+44 20 7991 5919
+44 20 7991 3025