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11 Insights with Topic: Government Bonds

Thoughts on the fed rate cut, inverted yield curve and floating rate US treasury
insightThoughts on the fed rate cut, inverted yield curve and floating rate US treasury

The time has come – Federal Reserve chair Jerome Powell finally signalled that rate cuts will likely start in Sep at Jackson Hole, though his remarks offered few clues as to how the Fed might proceed after its Sep gathering. On the surface, extending duration in US Treasuries appears to be a straightforward decision given the assumption that falling interest rates will lead to rising bond prices. However, it is not without risks and complexity as we are entering the rate cut cycle against very different backdrop from previous cycles. In this article, we discuss the intricacies of the upcoming rate cut trajectory, and why US Treasury Floating Rate Notes (FRNs) remains a relevant strategy for investors seeking diversification and stability as a result of the very much inverted yield curve, and market uncertainties in this journey.

Aug 28, 2024

Don’t sweat the potential issuance of an additional RMB 1 trillion Chinese government bonds
insightDon’t sweat the potential issuance of an additional RMB 1 trillion Chinese government bonds

Bloomberg reported that Chinese policymakers, led by the Ministry of Finance and the National Development and Reform Commission, are planning to launch a new round of stimulus, involving a potential issuance of at least RMB 1 trillion of additional China government bonds and an upward revision of fiscal budget deficit. Some investors may be worried about its negative impact on the bond market with the potential jump in supply. In this article, our Partner & Co-CIO David Lai discusses why we agree with most analysts that it would not create any lasting impact even if the plan materializes. In fact, China remains disciplined in fiscal policy whilst the overall monetary stance stays accommodative. China government bonds have outperformed almost all other sovereign bonds this year due to the rate cuts and low inflation expectations. The long end of China yield curve in particular benefited the most year-to-date, with the yields on 10-year, 30-year, and 50-year having fallen 13.8bps, 18.0bps, and 20.2bps respectively already.

Oct 19, 2023

US debt, deficits, and yields: Outlook
insightUS debt, deficits, and yields: Outlook

The US Treasury’s recent – and ongoing – dash for cash highlights the economy’s enormous fiscal challenges. To quote Bloomberg: “The barrage of fresh Treasury bills poised to hit the market over the next few months is merely a prelude of what’s yet to come: a wave of longer-term debt sales that’s seen driving bond yields even higher. Sales of government notes and bonds are set to begin rising in August, with net new issuance estimated to top USD 1 trillion in 2023 and nearly double next year to fund a widening deficit.” On top of that, according to calculations by asset manager Horizon Kinetics and as quoted by gold fund manager Incrementum, the US will have to refinance around half of its national debt of more than USD 35 trillion by 2025. That’s a lot of debt maturities to digest in two years. In this article, our Senior Advisor Say Boon Lim cautions that even if Fed rates stabilise, the longer-term outlook for US Treasury yields would likely remain risky as persistent deficits drive up debt relative to GDP, in turn driving interest payments as a percentage of GDP up “vertically”. Indeed, the Congressional Budget Office is warning of the “risk of a fiscal crisis”.

Jul 24, 2023

12 charts and where does China fare among its emerging market peers in the context of economic resilience
insight12 charts and where does China fare among its emerging market peers in the context of economic resilience

As China’s post reopening recovery has taken a slower pace than the high hopes of the markets, there have been concerns that China’s economic growth will be lower for longer resembling Japan’s "Lost Decade". However it is important to note China and its people do have a solid track record of resilience, and there are several structural features of China that differentiates it from other emerging markets or Japan in its growth trajectory. In this article, our Senior Advisor Say Boon Lim shares 12 interesting charts to review in the context of China’s relatively high economic resilience (as measured by the Swiss Re Institute’s Resilience Index), comparing with MSCI Emerging Markets ex-China’s key constituents namely India, Brazil, South Korea, Taiwan, and Saudi Arabia. Economic resilience being a product a policy stability and prudence, are pointing to an undervalued opportunity in Chinese equities and the appeal of Chinese government bonds for its stable yield at a time when other countries’ government rates and bond yields are surging.

Jul 03, 2023

End of Negative Yielding Bonds – What Lies Beyond
insightEnd of Negative Yielding Bonds – What Lies Beyond

Big, long-term trends could drive Developed Market bond yields much higher than the cyclical peaks that the market is currently pricing in. There are cycles and there are secular trends. If the super cycle of rates and yields has turned – off deep negative inflation-adjusted levels – then the lesser cycles could mean- revert a lot higher around long-term uptrends. And we are at this juncture at the moment, as the negative yielding bonds have literally disappeared - the global stock of negative yielding bonds had gone from a peak of US$18.4 trillion late in 2020 to zero recently. What are the true implications behind this abrupt turn of tides? In this article, our Senior Advisor Say Boon Lim discusses the big drivers for potentially much higher rates and yields for this year, and areas we are spending a lot more time monitoring, as the longer-term outlook could be far worse than just a mean reversion in nominal rates and yields as we may also be in the midst of a secular mean reversion in real government bond yields and corporate credit yields.

Jan 17, 2023

환헤지를 할까요, 말까요? 아시아 최초 RMB 비환헤지형 및 USD 환헤지형 옵션을 모두 갖춘 중국국채 및 정책은행채권 ETF
insight환헤지를 할까요, 말까요? 아시아 최초 RMB 비환헤지형 및 USD 환헤지형 옵션을 모두 갖춘 중국국채 및 정책은행채권 ETF

세계 시장은 인플레이션과 경기 불황 위험이 고조되는 가운데 2022년 현재까지 더 높은 변동성을 마주하고 있다. 미국 금리인상 사이클로 인한 달러 강세가 대부분의 외화표시 자산들의 달러수익률을 더욱 압박하고 있다. 이번 인사이트에서는 동종상품들 중에서는 아시아 최초로 USD 환헤지 기능을 제공하는 Premia China Treasury and Policy Bank Bond Long Duration ETF USD 환헤지형(9177.HK)을 추가한 이유에 대해 기술할 예정이다. 미국의 지속적 금리 인상 속 시가평가(MTM) 리스크를 염두에 둔 투자자와 장기 듀레이션 상품에 대한 자산배분이 필요한 자산가들을 위해, Premia China Treasury and Policy Bank Bond Long Duration ETF는 강력한 A1 국채 신용등급을 보유한 중국 장기국채 및 정책은행 채권에 투자접근성을 제공하는 특별한 투자도구로, 3% 이상의 경쟁력 있는 수익률과 안정적인 수익률 변동성, 그리고 이제는 USD 환헤지형 상품을 통해 위안화의 환율 위험을 최소화하면서도 중국 국채의 안정적인 수익률까지 잡을 수 있는 추가 옵션까지 제공한다.

Aug 18, 2022

A safe haven in market turbulence – Chinese Government Bonds
insightA safe haven in market turbulence – Chinese Government Bonds

Most asset classes did not perform well so far this year amid the rising interest rate environment and the Ukraine-Russia conflict, e.g., -12.8% in developed market equities, -10.1% in emerging market equities, -4.0% in global bonds, -29.1% in cryptocurrencies. The only exception was commodity, which went up over 32% year-to-date. Crude oil prices keep getting higher with no sign of a pullback in near-term, leading to a mounting inflation pressure to the global economic recovery. Investors are now thinking hard to reallocate their assets and shift away from the risky exposure. Riding the commodity rally by increasing the position in oil or gold may be one of the options, but the usual high volatility and negative carry are always the obstacles for placing any significant bets.

Mar 16, 2022

Foreign buying of Chinese bonds is up again – and here’s why
insightForeign buying of Chinese bonds is up again – and here’s why

Amidst the high risk of holding Developed Market government bonds and credits in an environment of rising inflation and historically low spreads, a frequent lament among institutions and large family offices is “but our mandate requires us to hold bonds.”

Jun 17, 2021

(Very) late cycle warning on DM Bonds
insight(Very) late cycle warning on DM Bonds

The inflation threat is now clear and present. And while equities may tolerate rising US inflation for a while longer, the Developed Market bond markets are highly vulnerable.

May 26, 2021

Why Premia China Treasury and Policy Bank Bond Long Duration ETF (2817.HK)?
insightWhy Premia China Treasury and Policy Bank Bond Long Duration ETF (2817.HK)?

As our Senior Advisor Sayboon Lim stated in the article “Gimme shelter” that it is essential for investors to have China sovereign bonds in their asset allocation, it would be timely for us to introduce the newly launched Premia China Treasury and Policy Bank Bond Long Duration ETF for your consideration.

Apr 28, 2021

“Gimme Shelter”: What’s driving the demand for Chinese Government Bonds, and Why Chinese Government Bonds?
insight“Gimme Shelter”: What’s driving the demand for Chinese Government Bonds, and Why Chinese Government Bonds?

Index provider FTSE Russell will add Chinese Government Bonds (CGBs) to the FTSE World Government Bond Index (WGBI) over three years from the end of October – a move that is expected to draw billions of Dollars of new portfolio inflows. Already, there has been a sharp increase in foreign inflows into RMB bonds over the past 12 months, accelerating soon after the start of the pandemic. In this 2-part series, our Senior Advisor Say Boon Lim highlights the drivers for new demand for CGBs and the reasons to own them.

Apr 22, 2021