A simple observation.

Since October 2017, there is some extent of yield divergence between US10Y and MY10Y whereby we see an increasing US yield vs a declining MY yield.

MY vs US 10Y Yield.png

US has also weakened against the Malaysian Ringgit since August – September 2017:

USDMYR.png

Similar yield divergence is observed in US10Y vs SG10Y:

SG vs US 10Y Yield.png

Similar to that of MYR, USD has also weakened against the SGD:

USDSGD.png

Similar yield divergence is observed in US10Y vs ID10Y:

ID vs US 10Y Yield.png

In contrast to MYR and SGD, the IDR appears rather mixed in the past 4 months but nevertheless has strengthened against the USD nearing end 2017:

USDIDR.png

In terms of yield differential, TH10Y seems to move in tandem with US10Y until mild divergence appearing towards the year end:

TH vs US 10Y Yield.png

The US currency has weakened against the THB since October 2017:

USDTHB.png

With three US rate hikes expected in 2018, it is quite natural to anticipate an increasing US yield. Theoretically, flow of funds should re-direct from emerging markets (e.g ASEAN region) towards the US in search of higher yield. This should lead to potential decline in the currency of emerging markets as well as increasing government debt yield to retain / minimise the outflow of funds. However, we are seeing a divergence whereby an increasing US yield has been met with an overall decline in government debt yield in the ASEAN region as well as strengthening of both the ASEAN currencies and equity markets.

Is this phenomena part of the greater scheme of US Dollar monetary debasement? Funds are moving out of US due to future debasement? Trump’s tax plan has expedited the debasement process? 

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