SA and South Korean bonds most vulnerable to US yield shock

Could 2020 finally be the year that the Treasury bears are vindicated?

If so, emerging-markets traders may find that Thai, South African and South Korean bonds are the most vulnerable, while those in India and Russia would be the least responsive, a Bloomberg analysis shows.

The study of 13 global emerging bond markets measuring their sensitivities to moves in the U.S. five-year yield showed those with highly consistent moves have economies more dependent on exports. By contrast, India and Russia — which rank at the bottom of the list — have a strong dependency on commodity prices and are less reliant on trade.

The analysis covers seven periods from mid-2011 when the five-year Treasury yield moved more than 35 basis points over a two-week period.

Below is a table showing the size and consistency of how each country’s bonds responded on average.



Average move versus 1 bp

move in Treasuries (bps)


Average move / standard

deviation of all moves (ratio)

Highly consistent

Thailand 0.36 2.62
South Africa 0.70 2.38
South Korea 0.47 2.25

Moderately consistent

Mexico 1.02 1.36
Poland 0.45 0.93
Brazil 0.57 0.75
Turkey 1.03 0.72
Indonesia 0.60 0.71
Malaysia 0.48 0.68
China 0.15 0.52


Hungary 0.26 0.44
India 0.12 0.29
Russia -0.49 -0.37

Source: Bloomberg

Key insights

  • Thai yields have seen the most consistent moves in response to a spike in 5-year Treasury yields, rising by an average 14 basis points versus an average 39 basis point move in the U.S. rate — a ratio of about 0.36, reflecting Thailand’s out sized dependency on trade
  • South African yields have seen highly consistent moves, rising by an average 0.7 basis points per 1 basis point move in Treasuries, likely reflecting the elevated foreign shareholding in the nation’s bonds and the rand’s freely-traded position
  • Similarly, South Korean yields have moved consistently in tandem with U.S. yields, rising by an average 0.47 basis points, underscoring its open capital accounts and strong trade dependency
  • India’s yields are the least responsive, rising by an average of only 0.12 basis points, due to its relatively lower trade dependence and foreign bond holdings
  • Russia’s yields fell by 0.49 basis points, though this is distorted by an out-sized drop in the February 2015 period as the central bank cut rates by 200 basis points at a single meeting held on Feb. 2.
    • If the outlier is discounted, Russia’s directional yield move is similar to U.S. yields while the responsiveness is closer to that of India’s
  • With growing signs the U.S. economy may be on the mend, Treasury yields are at risk of a shock move higher. Still, their 2020 trajectory remains unclear for economists with end-year estimates for the 10-year yield ranging from 1% to 2.5%
  • The most recent spike in U.S. yields occurred during the Sept. 3 – Sept. 16 period as investors priced-in a more hawkish Federal Reserve outlook, with fed fund futures now seeing the next rate cut in the third quarter of 2020
    • During this period — the only one where EM bonds diverged in the study — yields in Indonesia, Russia, Turkey and Brazil fell even as U.S. ones rose. Central banks in those countries cut policy rates in September and October and there was also a surge in U.S.-China trade optimism

NOTE: Marcus Wong is an EM macro strategist, who writes for Bloomberg. The observations he makes are his own and not intended as investment advice

© 2019 Bloomberg L.P.