Rising inflation deterred Asia’s deal-hunting bond buyers

The latest consumer-price benefit data from the Philippines, Indonesia and Thailand surprised upwards, indicating that cost pressures are outpacing market forecasts. Shorter dated yields, which are more sensitive to hawkish rate expectations, remain elevated as investors do not agree that inflation is at the top.

The stronger-than-expected inflation print contradicts Morgan Stanley analysts’ predictions that cost pressures will peak this quarter as the supply imbalance reverses. Last week’s strong US jobs report and continued sharp cues from policymakers are likely to raise bets for further tightening of US policy, which will impact the rising Asian debt.

“With liquidity in the geopolitical situation, it is difficult to call for extreme inflation with high confidence,” said Jin Yang Lee, an investment manager at Sovereign Debt at Abradon Plc in Singapore. “Still, we are reflecting on the prospects of a higher recession. Lower commodity prices, which should eventually begin to feed into the inflationary print.”

But for now, there are some signs that the price pressure is about to slow down.

Headline inflation in the Philippines rose to 6.4% in July, outpacing estimates of a 6.1% gain. The same measure in Indonesia exceeded economists’ expectations, while Thailand’s a gauge of core consumer-price gains topped forecasts last month.

According to a note from analysts at Goldman Sachs Group Inc. last week, “a more sustained EM rates rally also needs a green light from domestic inflation. A green light for rate recipients beyond any temporary relief would be given to local inflation.” Moderation will be required and related premiums.”

This story has been published without modification in text from a wire agency feed.

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