Asia's Highest-Yield Bonds Slide After Fed’s Hawkish Signal

(Bloomberg) -- Indian and Indonesian bonds fell as investors trimmed bets on aggressive interest-rate cuts in high-yield markets after a hawkish signal from the Federal Reserve.

The securities dropped after Fed Chairman Jerome Powell said Wednesday's monetary easing was “not the beginning of a long series of rate cuts,” taking some of the pressure off Asian central banks to follow suit.

“If EM Asian currencies continue to weaken significantly against the dollar, that may make EM Asian central banks more cautious about cutting their policy rate too aggressively,” said Edward Ng, a portfolio manager at Nikko Asset Management in Singapore.

The yield on Indonesia's benchmark 10-year bonds jumped nine basis points to 7.46%, while that on similar-maturity Indian debt climbed four basis points to 6.41%.

Read more: Asia Rallies at Risk of Pricing in Too Much Easing

The Reserve Bank of India has already cut rates by a combined 75 basis points this year in one of the most aggressive easings in Asia. Indonesia's central bank reduced its benchmark rate last month for the first time in almost two years.

Some caution may be warranted in reading too much into Thursday's bond sell-off, according to Eugene Leow, a fixed-income strategist at DBS Bank Ltd. in Singapore.

The rise in Indonesian yields may be a knee-jerk reaction, Leow said. “When the re-pricing of Fed expectations is done, investors will gravitate back again.”

To contact the reporters on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net;Chester Yung in Singapore at kyung33@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Brett Miller, Nicholas Reynolds

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