Asian bond markets continued to decline in December 2016 amid the second hike of the US Fed funds target rate since December 2015. Most underlying markets were down with Korean bond market being the worst. On a positive note, Indonesia, Malaysia and the Philippine bond markets managed to rebound after sharp declines the previous month. The Markit iBoxx ABF Pan-Asia Bond Index fell -1.33% on an unhedged basis, in US dollar terms, and fell -0.41% on a USD hedged basis.
During the month, Chinese bonds were down by -2.34% in USD terms. December manufacturing Purchasing Managers Index (“PMI”) moderated to 51.4 but November growth indicators showed broad-based improvement: Exports improved to +0.1% Year over Year (“YoY”) and imports surged to +6.7%, pointing to a pickup in domestic demand. Industrial production (+6.2% YoY) and retail sales (+10.8% YoY) improved while FAI (+8.3% YTD, YoY) was unchanged. Consumer Price Index (“CPI”) edged up to +2.3% YoY and Producer Price Index (“PPI”) jumped to 3.3% due to higher commodity prices. Finally, new loans and aggregate financing rose more than expected, showing a moderate pick up in aggregate demand.
Hong Kong fixed income market edged down by -1.89% in dollar terms for the month. The lagging 3Q16 industrial production decline narrowed to -0.1% YoY while PPI jumped to +3.9%. December PMI improved to 50.3 and November exports surged to +8.1% YoY, led by increases in the export to Asia. Finally, November CPI held steady at +1.2% YoY and unemployment rate edged down to 3.3%.
The Singapore fixed income market fell -2.1% in USD terms. The 4Q16 Gross Domestic Product (“GDP”) surprised on the upside at +1.8% YoY as both manufacturing and services bounced up. November industrial production surged to +11.9% YoY and Non-oil domestic exports rebounded (+11.5% YoY) with electronic shipment rising the most (+3.5%) in more than 1 year. October retail sales rose +2.2% YoY (-0.3% if excluding auto sales). Finally, headline CPI decline was flat YoY in November, ending 24 months of deflation.
Korean bond market declined by -2.89% in USD dragged down by a weaker won. The Bank of Korea held steady at 1.25% amid domestic political uncertainty and risk of a faster Fed hiking. November industrial production rose +4.8% YoY and December exports jumped by +6.4% YoY on broad-based improvement. Finally, December CPI slowed to +1.3% YoY from a revised +1.5% the previous month.
Malaysian bonds advanced by +1.12% in aggregate amid a rebound in Ringgit. October exports surprised on the downside at -8.6% YoY. On a positive note, October industrial production accelerated to +4.2% YoY. November CPI climbed to +1.8% YoY.
Thai bonds fell -1.21% in USD. The Monetary Policy Committee kept policy rate unchanged at 1.5%. November exports saw double-digit growth (+10.09% YoY). Meanwhile, December CPI accelerated +1.13% YoY.
Indonesian bond market rose +2.88% in dollar terms driven by both stronger rupiah and higher local bond prices. The 10 year government bond yield declined to 7.97% as of 30 December, 2016. Bank Indonesia kept interest rates on hold at 4.75%, indicating a shifted focus from growth to currency stability. November CPI accelerated to +3.58% YoY and export growth surged to +21.34%, the most since September 2011. Meanwhile, the Philippine bonds edged up by +0.34% in USD. The BSP kept its benchmark interest rate on hold at 3%. November CPI climbed to +2.5% YoY, the fastest pace since February 2015. October exports missed estimates of +7.9%, rising +3.7% YoY only.
Source: SSGA, as of 31 December 2016.
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