The huge rally in Asian government bonds driven by plunging oil prices may not last much longer, Reuters said in a report.
The rally, based on reduced expectations of inflation as fuel costs decline, could peter out as monetary policymakers remain hawkish.
The price of oil, of which Asia is a net importer, has halved in less than six months, driving bond yields down across the region as markets anticipate looser monetary policy to tackle the resulting disinflation.
The likelihood of further monetary easing in Europe and Japan is another factor behind decreasing bond yields, pushing up bond prices.
But there is little sign yet of official rate cuts, particularly in markets such as Indonesia, Malaysia and the Philippines, where central banks were sounding hawkish or even raising rates into the final months of last year, the report said.
“The oil price has caught central banks by surprise,” it quoted ING’s chief Asian economist, Tim Condon, as saying.
“The panic of 2013 is right now foremost in their minds, and they are looking at a Fed rate hike, and so I think they will remain pretty dug in.”
The fear of a repeat of 2013′s “taper tantrum”, when talk of the US Federal Reserve withdrawing monetary stimulus prompted vast sums of foreign capital to bail out of the region, helps explain why Asian central banks might err on the side of tighter monetary policy.
But there are other factors that also suggest official policy will stay tighter than the bond markets imply, the report said.
A rising US dollar is pushing down all emerging market currencies, which indirectly eases monetary conditions for Asian policymakers and creates pressure on them to keep interest rates up to prevent the flight of foreign cash.
One plausible scenario that could trigger a bond market tumble is if lower oil costs dramatically improve US growth numbers in the next few months, leading to renewed optimism about global growth and a rise in US Treasury yields, the report said.
Far from cutting rates, policymakers might then have to raise rates.
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