ISMS 14: Regional Interest Rates - Low in Asia, Egypt and Frontiers on Fire

Apr 5, 2023

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Developed Market Regions - ST rates about to peak, LT rates are falling, inverted yield curve in DM Americas and Europe widened

DM Americas 3m yield 4.8%, DM Europe 3%, DM Pacific much lower at 1.1%
DM Americas 1yr yield 4.6%, DM Europe 2.8%, DM Pacific same as 3m yield at 1.1%
DM Americas 10yr yield 3.5%, DM Europe 2.9%, DM Pacific 1.4% is higher than 3m and 1yr yield, normal yield curve

Biggest rise of 3m yield in Developed America
World 3m yield was up 3.2ppts, DM Americas up 4.3ppts, DM Europe up 3.3ppts, DM Pacific up 1.1ppts
Following 3m yield, 1yr yield YoY changes were most prominent in DM Americas and DM Europe
World 1yr yield was up 1.9ppts, DM Americas up 3ppts, DM Europe up 2.9ppts, DM Pacific up 0.8ppts
10yr yield in DM Europe and DM Americas widened fastest, little movement in DM Pacific
World 10yr yield was up 0.9ppts, DM Americas up 1.2ppts, DM Europe up 1.8ppts, DM Pacific up 0.4ppts

3m yield has risen most aggressively in DM Americas
DM Europe yield moved at a similar pace to World
DM Pacific yield only rose slightly, widening the 3m interest rate differential to other DM regions
Unlike World, 1yr yield has fallen in all DM regions in March 2023
10yr yield in DM Americas and DM Europe moved up simultaneously
DM Pacific 10yr yield stayed almost flat
All DM 10yr rates fell MoM in March

DM Americas yield curve has inverted the most among all DM regions
In March 2023, the 3m yield was 1.3ppts higher than the 10yr yield
The degree of inversion is similar to World
DM Europe yield curve just inverted in March 2023
The yield curve turned to negative territory as the 10yr yield dropped in March by 0.4ppts compared to February
Though the inversion is much less extreme compared to World
DM Pacific sees flattening yield curve over the past 12 months, but remains positive
As of March 2023, the long-term 10yr yield was 0.3ppts higher compared to the short-term 3m yield
One year earlier, the difference was 0.9ppts

ST rates in DM Americas and Europe risen more aggressively than World, DM Pacific much slower
Small increases in LT rate in all DM regions YoY, but fell MoM
DM Pacific maintains a positive yield curve while inversion worsened in DM Americas and Europe

EM Americas 3m yield 12.7%, EM Asia 3.2%, EM Europe 14.6%, EM ME&A 52.7%, Frontier markets 23%
EM Americas 1yr yield 12.6%, EM Asia 3.2%, EM Europe 9.4%, EM ME&A at 23% is half 3m rate, Frontier markets 17.1%
EM Americas 10yr yield 11.2%, EM Asia 3.6%, EM Europe 8.8%, EM ME&A 10yr yield at 15.4%, 1/3rd of 3m rate, Frontier markets 10yr yield 11.9%, half 1yr

3m yield has risen in all EM regions; it was most extreme in ME&A and Frontier markets
EM Americas 3m yield was up 3.1ppts, EM Asia up 0.9ppts, EM Europe up 0.3ppts, EM ME&A 3m yield was up 43.2ppts, Frontier 3m yield was up 10.6ppts
1yr yield saw a rise in all EM regions YoY, except in EM Europe
EM Americas 1yr yield was up 1.8ppts, EM Asia up 0.8ppts, EM Europe down 3ppts, EM ME&A up 9.2ppts, Frontier up 4.3ppts
10yr yield surged in all EM regions, except EM Europe
EM Americas 10yr yield was up 1ppts, EM Asia up 0.1ppts, EM Europe down 2.7ppts, EM ME&A up 2.7ppts, Frontier up 3.4ppts

3m yield has moved in different directions among EM regions
ME&A and Frontier saw extreme increases in their 3m rates mainly driven by Egypt
EM Asia and EM Europe actually stayed flat over the past 12 months
Spotlight on Egypt Inflation went from 9% to 32% in 12 months
Russia and Ukraine account for 80% of Egypt’s wheat imports
Since the war, import prices skyrocketed
50% currency devaluation in 2016 and another 50% since March 2022
1yr yield in all EM regions higher than World, except Asia
10yr yield in EM regions were less fluctuating
All EM regions have a higher long-term 10y yield than World

EM Americas yield curve inverted slightly more than World
EM Asia yield curve is the only EM regions which didn’t see an inversion of its yield curve yet
Though, the yield curve has flattened over time
In March, the difference between the 10y yield and 3m yield was just 0.4ppts
One year earlier, the difference stood at 1.2ppts
EM Europe yield curve inversion more than doubled over the past 12 months
In March 2023, the long-term yield was 5.8ppts higher than the 3m yield
12 months ago, the difference was only 2.8ppts
EM ME&A yield curve has massive inversion
Given the aggressive increase in 3m yield, the inversion amounted to 37.4ppts in March 2023
This compared to no inversion one year ago
Frontier yield curve stays inverted in March 2023, but a bit less MoM

ST rates exploded in ME&A and Frontier, EM Asia and Europe were more cautious in raising ST rates
LT rates of all EM regions rose and remained above World; only EM Europe saw falling yield YoY
Asia remains the sole EM region with no yield curve inversion, inversion looks painful for EM Europe, ME&A, and Frontier