Dbs Group Holdings Ltd · SGX:D05
Dbs — Conference Presentation (June 2022)
25 slides from Dbs's conference presentation, Jun 22, 2022
Slide 1: Fed Front-loading and Market Impact
Fed Front-loading and Market Impact Eugene Leow, Senior Rates Strategist Duncan Tan, Rates Strategist Moderated by Taimur Baig, PhD, Chief Economist 22 June 2022 Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or
Slide 2: Agenda
Agenda A DM perspective An Asia perspective
Slide 3: G10 Rates Violently Adjust
G10 Rates Violently Adjust Normalization in G10 yields % pa Pandemic Era Post-pandemic 4.00 10Y UST Yield G10 (ex US) Ave 10Y Govt Yields Inflation fears 3.50 Trump wins US Presidency Fed taper tantrums 3.00 Fed hikes German Bund begin in tantrums earnest 2.50 COVID-19 hits in 1Q20 2.00 1.50 Fed-ind
Slide 4: The Fight Against Inflation Has Not Been Won
The Fight Against Inflation Has Not Been Won US Inflation momentum Alternative measures of US inflation % chg from 3M ago, smoothed, annualized % 12.00 12 Finished gds ex Cleveland Fed trimmed-mean 10.00 food & energy Atlanta Fed sticky CPI 8.00 10 NY Fed underlying inflation 6.00 NY Fed underlying
Slide 5: Market Pricing
Market Pricing Market pricing tightening in the next one year Fed and market views bps % pa 350 4.00 Median Fed 1st year projections (Jun-2022) 3.75 300 2nd year 3.50 250 3rd year 3.25 3.00 Implied Fed 200 2.75 funds rates 2.50 150 2.25 2.00 100 1.75 1.50 50 1.25 Median Fed projections (Mar-2022) 0
Slide 6: Market Stress
Market Stress Financial Conditions Index vs Fed % pa index 1.00 3 Financial Conditions Index (rhs) 0.75 2 0.50 1 0.25 0 0.00 -1 -0.25 -2 -0.50 Fed funds rate chg (lhs) Financial conditions below -3 -0.75 this would deter Fed hikes -1.00 -4 May-91 May-96 May-01 May-06 May-11 May-16 May-21 Source: Blo
Slide 7: Tight Enough?
Tight Enough? UST Implied Real Yields % 3 2 10Y Tight 1 0 -1 Loose -2 5Y 2Y -3 -4 May-12 May-15 May-18 May-21 May-24 Source: Bloomberg, DBS 7
Slide 8: Policy Path
Policy Path 1Q22 2Q/3Q22 4Q22 2023 Pandemic Jumbo Normal Hikes Hike starts Crisis 2020 hikes hikes stop 1-year QT to start in mid-2022 and run for 2.5 years gap Cyclical curve flattening over coming years as Fed hikes proceed 2Y, 5Y & 10Y UST %pa Hike Timing: Kickstarted in March 2022 3.75 3.25 Pace
Slide 9: Recession Risks & Scenarios
Recession Risks & Scenarios US recession probabilties & 3M/10Y UST curve % chance of recession in 12 mths 50 45 High Growth, High Growth, High Inflation Low Inflation 40 We might get 35 here in end-2022 The path 30 is not set 25 20 We are here Low Growth, Low Growth, 15 High Inflation Low Inflation
Slide 10: Takeaways
Takeaways The fight against inflation has not been won Inflation is a problem now, hence policy tightening needs to be frontloaded There is a price to pay to bring inflation down Recession risks are larger now, especially as the Fed embarks on Jumbo hikes 10
Slide 11: Agenda
Agenda A DM perspective An Asia perspective
Slide 12: Asia-US rate differentials are tightening fast…
Asia-US rate differentials are tightening fast… 12
Slide 13: Should Asia investors be worried?
Should Asia investors be worried? Tightening Asia-US rate differentials are more manageable if Asia’s growth is outperforming Asia’s BOP is strong Broad US Dollar is weak 13
Slide 14: BOP - Current Account
BOP - Current Account Thailand Korea China Malaysia Philippines Indonesia Period 2017-2019 Jan-Apr Jan-Apr Jan-Mar Jan-Mar Jan-Mar Jan-Mar Avg of 14,401 13,891 21,607 3,069 (1,103) (4,502) 2021 (1,299) 22,519 70,861 2,933 (32) (1,087) 2022 (4,962) 15,313 89,500 712 (4,808) 221 USD mn 25,000 20,000 1
Slide 15: BOP - Portfolio Investments
BOP - Portfolio Investments 15
Slide 16: Sensitivities to Fed's frontloading and higher US rates
Sensitivities to Fed’s frontloading and higher US rates 16
Slide 17: Impact of higher US real rates on Asia bond valuations
Impact of higher US real rates on Asia bond valuations 17
Slide 18: CNY Rates
CNY Rates Expectations of PBOC rate cuts are low % 27 4 26 4 2s {Ww 2.4 4 2.3 4 2.2 4 21 4 2.0 4 19 4 ———PBOC 7D Rev Repo 18 4 ——7D Repo fixing, 20D MA a —1v IRs 16 4 15 r T r T Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Source: Bloomberg Foreign inflows into China equities and bonds USD bn 35: 4 30 4 25 20
Slide 19: INR Rates
INR Rates RBI Policy vs OIS rates Banking Liquidity % INR tn 7.0 4 24 RBI Reverse Repo 65} RBI Standing Deposit Facility 0 60 4 = RBI Repo —— ON Mibor a5 5.5 4 —1Y 0IS ——2Y O'S Surplus 8 3.5 3.0 , 1 T T -10 - Apr-20 Oct-20 Apr-21 Oct-21 Apr-22 2018 2019 2020 2021 2022 Source: Bloomberg Source: Bloom
Slide 20: IDR Rates
IDR Rates BI Policy and Money Market Rates 75°49 7.0 4 6.5 4 6.0 5.5 5.0 45 40 3.5 3.0 25 T —— BI 7D Reverse Repo (Policy) ——= Standing Facility - Deposit Standing Facility - Lending == INDONIA - ON Interbank BI Term Deposit 2019 2020 Source: Bloomberg Bank Liquidity and BI OMO (LHS) 0+ T Excess Liq
Slide 21: KRW Rates
KRW Rates % 4.25 4.00 375 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 1.50 BOK Policy Rate - Forward Pricing -1.0 0 —@— 6/20/2022 —e— 6/1/2022 months 12 24 36 48 60 Source: Bloomberg % 2:9: 7 2.0 4 15 1.0 0.5 0.0 0.5 2017 10Y KTB yield pick-up over UST ——— Unhedged ——— FX-hedged with 3M FX swap 2018 201
Slide 22: SGD Rates
SGD Rates % SGD vs USD Short Rates 25 5 »MAS Standing Facility - Deposit (MA) 29 j~——1M Compounded SORA =F ed Funds Target - Lee Lower == 30D Compounded SOFR 1.0 0.5 0.0 Sot T T 2014 2016 2018 2020 2022 jurce: Bloomberg MAS Money Market Operations USD bn 15 4 Liquidity Withdrawal 10 4 54 04 te -10 4
Slide 23: THB Rates
THB Rates THB Interest Rates Govt Debt Outstanding by Instrument % 3.0 - 600 4 THB bn, THOR - ON Repo 6M Chg 2.5 4 smn 6M THB FIX 450 4 —— Govt Bonds ——— 1Y THB Onshore OIS Promissory Notes and Loans 2.0 + —2Y THB Onshore OIS apo Treasury Bills =r SY THB Onshore OIS 15 4 v 150 4 1.0 0.5 ui 0.0 T T T
Slide 24: Takeaways
Takeaways Asia’s macro outlook not particularly strong Asia central banks at crossroads on how to react to Fed frontloading How they react will impact Asia macro markets Proper recovery in Asia bond returns a 4Q prospect 24
Slide 25: Thank You
Thank You GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates) The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but
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