Global rates roundup / chart-pack

Interest rate strategy Global rates roundup / chart-pack DBS Group Research 25 April 217 The first round of the French presidential election has increased the odds of a market-friendly outcome at the run-off on 7 May Sentiment has improved but lingering concerns still lie over the US debt ceiling and Trump s tax reforms Implied volatility across the different asset classes are starting to look very low The carry environment that has been in place since the beginning of the year is still intact Short-term Asia rates are likely to head higher as the Fed hikes, albeit at a slower pace UST yields are on the low side as expectations of Trump stimulus wane Positioning in USTs are now close to neutral INgov yields have bottomed, but the carry remains attractive Long-term SGS yields look low compared to UST yields MGSs may start to catch up with their peers Within the G1 space, European government yields are slightly higher for the year 1Y yields in the other parts of the developed world are modestly lower The carry environment has generally benefitted emerging market government bonds The tighter monetary policy stances in China and India are pushing up their respective government bond yields Global Rates Change in 1Y Government Bond Yields since end-216 bps 6 G1 Other EMs Asia 4 2-2 -4-6 -8-1 -12-14 GER CHF SEK NOK JPY AUD USD GBP CAD NZD MXN ZAR RUB COP TRY BRL CNY INR KRW THB MYR SGD HKD IDR Eugene Leow (65) 6878-2842 eugeneleow@dbs.com Refer to important disclosures at the end of this report. 1

Global The USD is still weak, providing the backdrop for the carry environment Asia government bonds and Asia FX generally held up well through the jitters of the French elections Changes in 1Y Yields & FX since end-216 chg in yields in bps -1-75 ID -5 HK SG AU UK -25 MY IN TW 25 US, DXY KR TH GE, EUR 5 PH CN % chg in FX 75 vs USD -4. -2. 2. 4. 6. 8. The increased implied volatility that preceded the first round of the French presidential elections have faded Optically, implied volatilities across the different asset classes look very low Volatilities vol 3 25 2 15 1 5 VIX 3M EUR/USD 3M1Y Swaption (rhs) Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 vol 1 95 9 85 8 75 7 65 6 55 5 The market is still overly dovish on the Fed, pricing in 3 / 4 hikes over the next three years SG and HK markets appear to be more wary about the prospect of Fed hikes over the medium term. Change in Short-term Rates as Priced by the Market 1.4 1.2.8.6.4.2 219 218 217 -.2 US EZ JP SG HK MY TH KR TW CN IN 2

The yield spread of 1Y French government bonds to 1Y German Bunds narrowed significantly after the market-friendly outcome in the first round of the French elections Further spread narrowing is in order but that would likely take place only after the second round of elections on 7 May confirms a Macron victory Yield Spread of1y French Bonds over 1Y German Bunds bps 1 9 8 7 6 5 4 3 2 1 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 1Y yields for the G7 economies have retraced a portion of their increases since 3Q16 Barring a shock, downside to yields is likely to be limited with a global economic tailwind 1Y Government Bond Yields 2.75 1Y UST Yield 2.5 2.25 2. 1.75 1.75 1.25.75 1.25 G7 (ex US) Ave 1Y Govt Yields.5.25 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 3

United States Net positioning in USTs is close to neutral, after having narrowed from a record net short in the early part of the year This sets the stage for a rise in UST yields over the medium term 2Y, 5Y & 1Y UST Net non-comm futures positions contracts, thousands 5 3 1-1 -3-5 -7-9 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Inflation expectations tumbled, and dragged down short-term USD interest rates in the process 3Y Breakevens & 3Y3M Libor 3. 3. However, with the US economy near full employment, downside to the 3Y breakeven appears limited 2.5 2. 3Y3M Libor (rhs) 2.5 2. The 3Y3M Libor and the 3Y breakeven are poised to rebound in the coming months.5 3Y breakevens.5 Jan-14 Jan-15 Jan-16 Jan-17 1Y UST yields are likely to return to the 2.3-2.6% range in the coming months 1Y UST Yield %pa 3. 2.75 2.5 2.25 2. 1.75 1Y UST Yield Risk aversion zone 1.25 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 4

India The Reserve Bank of India (RBI) narrowed the policy rates corridor in April IN: Policy Rates & Overnight INR Rate %pa 9. 8.5 O/N interbank Rate With liquidity still flush from demonetization and portfolio inflows, we suspect that the RBI may be trying to put a floor on short-term INR rates 8. 7.5 7. 6.5 Repo Rate MSF Rate 6. 5.5 Reverse Repo Rate 5. Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 An RBI tightening cycle is not imminent Headline CPI is still hovering below the medium-term target of 4% CPI & WPI % chg YoY 14 12 CPI 1 8 Medium-term CPI target 6 4 2-2 -4 WPI -6 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 The INR OIS curve is steep in the 2Y/5Y segment and flat in the 5Y/1Y segment 5Y INR OIS rates appear relatively attractive compared to 2Y and 1Y rates 2Y, 5Y & 1Y OIS %pa 7. 6.75 6.5 1Y OIS 5Y OIS 6.25 6. 2Y OIS 5.75 5.5 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 5

Singapore The normalization of SGD interest rates below USD interest rates muddled the passthrough (to SGD rates) from the two recent Fed hikes The actual passthrough can be seen from the change in 3M SOR from early September to the present 3M SOR & 3M Sibor vs 3M Libor %pa 1.75 1.25.75 3M Sibor Normal.5.25 3M Libor 3M SOR Jul-15 Jan-16 Jul-16 Jan-17 Longer-term SGD swap rates still appear too high relative to USD swap rates The front of the SGD swap curve also appears steep relative to the USD swap curve SGD Versus USD Swap Curves 3. SGD Swap Curve 2.5 2. 1.5 USD Swap Curve 1..5. 3M6M1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y1Y 15Y 2Y 5Y-1Y SGSs are relatively more attractive Interpolated SGS & UST Curves The back of the SGS curve is unattractive given how flat the curve is and how low SGS yields are compared to similar tenored USTs The front of the SGS curve may be susceptible to a more hawkish Fed 3. 2.5 2. UST curve SGS curve, spot.5 Maturity in Years 6M 5 1 15 2 25 3 6

Malaysia MGSs have been lagging its Indon peers over the past few quarters Constraints on FX hedging is likely the main reason why MGSs are underperforming 1Y Government Bond Yields 5. 4.75 4.5 4.25 1Y IDgov (rhs) 9. 8.5 8. 4. 7.5 3.75 3.5 3.25 1Y MGS 7. 6.5 3. Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 6. While foreign investors are generally adding to local currency government bonds, foreign ownership of MGSs fell sharply MGSs have room to play catch up to their peers, especially if the central bank takes steps to facilitate onshore FX hedging Foreign Holdings of Govt Bonds USD bn 6 55 5 45 4 35 3 IDgov KTB (rhs) MGS USD bn 75 7 65 6 55 5 25 45 2 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17, DBS transformation 4 Malaysia s policy rate is likely to be kept stable for the foreseeable future CPI & Core CPI %chg YoY 6 The spike in the CPI is due to administered prices and is not reflective of price pressures. Core CPI is still barely hovering above 2% 5 4 3 CPI Taking inflation to be 2%, real MGS yields are firmly positive 2 Core CPI 1 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Sources: Data for all charts and tables are from CEIC, Bloomberg and DBS Group Research (forecasts and transformations). 7

GDP & inflation forecasts GDP growth, % YoY CPI inflation, % YoY 214 215 216 217f 218f 214 215 216 217f 218f US 2.4 2.6 1.6 2.6 2.6 1.6.1 1.2 2.3 2.3 Japan.3 1.2 1. 1. 1.1 2.7.8 -.1.5.6 Eurozone.9 1.9 1.7 1.6 1.7.6..2 1.3 1.4 Indonesia 5. 4.9 5. 5.3 5.4 6.4 6.4 3.5 4.5 5.1 Malaysia 6. 5. 4.2 4.5 4.6 3.1 2.1 2.1 2.7 2.5 Philippines 6.2 5.9 6.8 6.4 6.7 4.2 1.4 1.8 2.9 3. Singapore 2.9 2. 2. 2.8 2.5 1. -.5 -.5 1.2 1.8 Thailand.9 2.9 3.2 3.4 3.5 1.9 -.9.2 1.6 2.1 Vietnam 6. 6.7 6.2 6.6 6.7 4.1.6 2.7 4. 3.2 China 7.3 6.9 6.7 6.5 6.3 2. 1.4 2. 2.3 2.1 Hong Kong 2.5 2.4 1. 2. 2.1 4.4 3. 2.6 2.4 2.5 Taiwan 4..7 1.5 2.5 2.3 1.2 -.3 1.4 1.2 1. Korea 3.3 2.8 2.8 2.5 2.5 1.3.7 1. 1.8 1.6 India* 7.2 7.9 7.2 7.6 7.8 6. 4.9 4.6 5. 5.2 * fiscal year ending Mar Policy & exchange rate forecasts Policy interest rates, eop Exchange rates, eop current 2Q17 3Q17 4Q17 1Q18 current 2Q17 3Q17 4Q17 1Q18 US 1.25 1.75 2. Japan -.1 -.1 -.1 -.1 -.1 19.8 113 114 116 117 Eurozone 1.87 1.5 1.4 1.4 1.4 Indonesia 4.75 4.75 5. 5. 5. 13,322 13,551 13,614 13,677 13,74 Malaysia 3. 3. 3. 3. 3. 4.39 4.5 4.54 4.57 4.6 Philippines 3. 3.5 3.5 3.5 3.5 49.8 5.2 5.7 51.1 51.5 Singapore n.a. n.a. n.a. n.a. n.a. 1.39 1.44 1.44 1.45 1.45 Thailand 34.4 35.6 35.7 35.9 36. Vietnam^ 6.5 6.5 6.5 6.5 6.5 22,72 22,849 23,34 23,218 23,42 China* 4.35 4.35 4.35 4.35 4.35 6.88 7.2 7.11 7.19 7.28 Hong Kong n.a. n.a. n.a. n.a. n.a. 7.78 7.78 7.78 7.78 7.78 Taiwan 1.38 1.38 1.38 1.38 1.38 3.3 31.4 31.5 31.5 31.5 Korea 1.25 1.25 1.25 1.25 1.25 1,134 1,173 1,174 1,175 1,177 India 6.25 6.25 6.25 6.25 6.25 64.4 68.8 68.9 69.1 69.3 ^ prime rate; * 1-yr lending rate Market prices Policy rate 1Y bond yield FX Equities Current Current 1wk chg Current 1wk chg Index Current 1wk chg (%) (%) (bps) (%) (%) US 2.27 1 99.1-1.2 S&P 5 2,374 1.1 Japan.1.2 1 19.8 -.8 Topix 1,53 2.6 Eurozone.33 14 1.87 2.1 Eurostoxx 3,577 3.7 Indonesia 4.75 7.11 4 13322 -.5 JCI 5,664.4 Malaysia 3. 4.12 4 4.39.4 KLCI 1,756 1.3 Philippines 3. 5.23-19 49.8 -.5 PCI 7,589. Singapore Ccy policy 2.14 4 1.393.4 FSSTI 3,144.2 Thailand 2.69 8 34.4 -.3 SET 1,565 -.7 China 4.35 6.88 -.1 S'hai Comp 3,13-2.9 Hong Kong Ccy policy 1.44 144 7.78 -.1 HSI 24,139 -.5 Taiwan 1.38 1.9 7 3.3.3 TWSE 9,718. Korea 1.25 2.2 3 1134.4 Kospi 2,174 1.3 India 6.25 6.94 9 64.4.1 Sensex 29,656.8 8

Recent Research TW: Trump and Taiwan, revisited 2 Apr 17 ID: stronger rupiah a boost 2 Apr 17 CNH: room to loosen controls 13 Apr 17 IN: watching state finances 12 Apr 17 SGD: neutral for a long time to come 7 Apr 17 SGS: FX tailwind at the limit 7 Apr 17 IN: structural tailwinds to add to cyclical 31 Mar 17 upswing KR: is optimism justified? 29 Mar 17 IN: monetary policy on cruise control 27 Mar 17 TH: narrower C/A surplus a plus 21 Mar 17 SG: ensuring fiscal sustainability 2 Mar 17 Qtrly: Economics-Markets-Strategy 2Q17 9 Mar 17 Asia: Trump and the state of US-Asia trade 7 Mar 17 CN: the rise and rise (and rise) of the RMB 24 Feb 17 ID: next move is a rate hike 21 Feb 17 SG budget: building the future economy 21 Feb 17 CN: what to watch for as PBoC tightens 2 Feb 17 SG: upgraded 2 Feb 17 TW: Trump s policies and Taiwan 15 Feb 17 SG: shaping the future 6 Feb 17 FX: USD strength hits a roadblock 3 Feb 17 IN budget: a balanced approach 2 Feb 17 Rates: global rates roundup 2 Feb 17 TW: shifting into higher gear 27 Jan 17 SG: time to recalibrate 26 Jan 17 EZ: ECB stays defensive 24 Jan 17 ID: looking at an S&P upgrade 19 Jan 17 US: pop goes the headline 18 Jan 17 Asia cyclical dashboard 17 Jan 17 IN budget: stability over growth 12 Jan 17 Rates: SGS: US-dependent 1 Jan 17 IN: is oil the next headache? 13 Dec 16 Qtrly: Economics-Markets-Strategy 1Q17 8 Dec 16 ID: FDI much stronger than it appears 3 Nov 16 EZ: ECB challenged by higher bond yields 16 Nov 16 TW: 7 likely outcomes in 217 15 Nov 16 Global: revenge of the demographic dividend 14 Nov 16 US: structural interest rate compression 2 Nov 16 FX: mid-quarter update 1 Nov 16 SG: down but not out 1 Nov 16 Rates: global rates roundup 31 Oct 16 TW: diversifying into Southeast Asia 21 Oct 16 CN: cyclical bottom 19 Oct 16 IN: assessing current account 18 Oct 16 improvement PHgov bonds: expensive (still) 11 Oct 16 SGD: sticking to neutral 7 Oct 16 Disclaimer: The information herein is published by DBS Bank Ltd (the Company ). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts and tables are CEIC and Bloomberg unless otherwise specified. DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 18982. Tel: 65-6878-8888. Company Registration No. 196836E. 9