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Speaker 1: Let's get to our guest, King Xingong is with us.

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Speaker 1: Had a fixed income for the APAC region at State

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Speaker 1: Street Global Advisors. Joining on the line from Singapore, King Xian,

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Speaker 1: thanks for being with us. I think we have to

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Speaker 1: begin with this reading on cp I that we had

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Speaker 1: in the US a monthly advance that was much smaller

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Speaker 1: than what the market was braced for. We saw collapse

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Speaker 1: in yields right across the treasury curve. I think the

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Speaker 1: market was already braced for the fact that we're gonna

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Speaker 1: probably more than likely see a fifty basis point rate

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Speaker 1: hike tomorrow at the Fed's December meeting. But does this

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Speaker 1: necessarily mean that the FED is going to become far

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Speaker 1: less aggressive in in its stands on raising rates as

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Speaker 1: we move into Yeah, I would think so. The the

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Speaker 1: recent softness of the data does give the FAT a

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Speaker 1: little bit more leeway in terms of making adjustments to

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Speaker 1: the policy in terms of the managing of rate heights. Certainly,

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Speaker 1: the the lower invasion number would help, I think moving

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Speaker 1: into next year, as we see the growth begins to

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Speaker 1: slow down as expected, I think the FAT may have

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Speaker 1: to change in terms of what they have been doing

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Speaker 1: in the last few months, So certainly I think it

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Speaker 1: sets up the market well in that direction. But again

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Speaker 1: we can't fully rule out right if there are any

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Speaker 1: are the surprises that come out along the way within

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Speaker 1: now in the next few months, then the fat will

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Speaker 1: still stay course on what they have been doing. So

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Speaker 1: I think the market right now is batting along the

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Speaker 1: line that the Fat root kind of moderate further from

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Speaker 1: where they are. So that's what we are looking at

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Speaker 1: at movement. Yeah, it's pretty clear that the aggressive policy

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Speaker 1: so far is having the desired effect, but of course

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Speaker 1: it does have a lagging impact. How much of that

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Speaker 1: lag do you feel is yet to be reflected? Much

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Speaker 1: the greater risk now over tightening or letting up too soon? Um,

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Speaker 1: I think the fact is trying to calibrate it's mountrip policy,

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Speaker 1: and it's never an easy one given what's happening with

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Speaker 1: all the metro drivers around us. I think right now

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Speaker 1: it does feel that there are certain uh sectors of

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Speaker 1: the economy begin to feel the slowdown. Um, whether they

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Speaker 1: have been overtightening. Perhaps it's a bit premature to say. Um,

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Speaker 1: you know, the numbers clearly are on the weaker side.

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Speaker 1: As long as we don't really move into a recession

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Speaker 1: in a very long manner. I think the fact has

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Speaker 1: me be getting it somewhat closer to correct. So I

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Speaker 1: think that at this point in time, it feels that

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Speaker 1: we are kind of about on the right track. In

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Speaker 1: terms of the yield curve, I think we've got what

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Speaker 1: negative seventy three basis points and spread between the two

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Speaker 1: and the ten obviously were inverted. Is that going to

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Speaker 1: remain the case for some time? And inverted US treasury

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Speaker 1: yield curve? I think at least until the market um

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Speaker 1: kind of starts to pricing a red card. I think

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Speaker 1: the curve needs stay flat and somewhat inverted still. I

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Speaker 1: think so therefore, going into next year, more or less

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Speaker 1: the the inverted curve me um stay for a while.

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Speaker 1: It's it's a matter whether that would stay as inverted

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Speaker 1: as now. Um, you know that would be I guess

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Speaker 1: something that we change. Yeah, we've not seen inversion at

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Speaker 1: these levels since the nineteen eighties. Do you feel that

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Speaker 1: recession is pretty much inevitable based on that or is

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Speaker 1: it still avoidable? Well, the the statistics in the past

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Speaker 1: I have shown that the you curve slope as a

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Speaker 1: pretty good prediction power. I guess I wouldn't really rule

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Speaker 1: that out, which means that the probability of a recession

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Speaker 1: is reasonably high given what we are seeing now. Of course,

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Speaker 1: the you know they fact me continues to U adjust

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Speaker 1: this policy and we we perhaps see some slightly better

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Speaker 1: performance in the economy. So I think, looking at where

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Speaker 1: the curve is, at least we are looking for a

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Speaker 1: weak growth at least bordering recession. And again, the technical

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Speaker 1: recession is one thing, and what the the and be

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Speaker 1: you know with definance recession is another. But I would

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Speaker 1: say that it does feel like recession, even though in

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Speaker 1: some cases growth may not be at a recession level.

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Speaker 1: So Kinching, I'm wondering whether or not, given everything that

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Speaker 1: you're saying, if if I had to put money to

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Speaker 1: work in fixed income right now, and I restricted myself,

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Speaker 1: let's say to sovereign debt at where U S. Treasuries

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Speaker 1: are concerned, if we can perhaps speculate that the FED

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Speaker 1: will tighten twenty five basis points in February and then

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Speaker 1: remain um tight for a while, but certainly not adjust

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Speaker 1: rates higher. That the fact is that growth is going

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Speaker 1: to begin to weaken, we're talking about recession. Maybe I

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Speaker 1: want to be more exposed to the shorter end of

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Speaker 1: the yield curve. Is a two year treasury buy here

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Speaker 1: with the yield of Yeah, I think suddenly, if you

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Speaker 1: have that view as you describe, it does definitely feel

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Speaker 1: like the fat is at the end game, right, Whether

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Speaker 1: the next grade cut is priced in that quickly, it's

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Speaker 1: still very much uncertain. But suddenly, if you have that view,

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Speaker 1: fifty business point this week and twenty five in February

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Speaker 1: next year, and kind of like that's the end of that,

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Speaker 1: and growth doesn't look good, the very likelihood of the

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Speaker 1: front end starts to do better. I think it's getting there.

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Speaker 1: I guess it's really a timing, So I think I

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Speaker 1: would kind of agree that you know, at some point

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Speaker 1: in the short end we'll start to do better. So

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Speaker 1: I know you also see emerging market local currency bonds rebounding.

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Speaker 1: What's your case, Yeah, the emerging markets rebound um is

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Speaker 1: driven by a few things. First of all is the

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Speaker 1: overall sentiment on on rates. We believe are till things

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Speaker 1: towards um less of a tightening at least morning time,

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Speaker 1: even though we are not fully done. Hence the sell

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Speaker 1: off in rates. Developed market as emerging market we feel

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Speaker 1: that they're offering value. Emerging market in the sense that

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Speaker 1: we have seen this year have been beaten up quite

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Speaker 1: badly as well, not just on the rate side, but

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Speaker 1: also on the ffects call the currency side. Hence we

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Speaker 1: are looking at from the point of evaluation and where

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Speaker 1: investors positioning is at the moment. It does feel like

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Speaker 1: the e M local currency on the Asia that's offer

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Speaker 1: a good opportunity for a rebound next year. So we

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Speaker 1: would be looking at opportunity in this area for next year.

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Speaker 1: So I'm going to read between the lines. Then, what

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Speaker 1: we're talking about in terms of US rates, if you

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Speaker 1: extend that into the foreign exchange, the dollar is probably

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Speaker 1: topped out. Are you expecting the dollar to weekend in

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Speaker 1: three and then that would create the case for maybe

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Speaker 1: um fixed income products let's say that are non dollar denominated. YEP.

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Speaker 1: Certainly the dollar has been helped this year by the

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Speaker 1: US fat race. Obviously that's also some uncertainty and the

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Speaker 1: rest of as well. So clearly next year, if you're

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Speaker 1: expecting the fat moderate and pause thereafter, I think the

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Speaker 1: all that would start to lose its UH strong support.

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Speaker 1: That plus also the fact that the other economies are

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Speaker 1: beginning to kind of stage a bit of a recovery,

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Speaker 1: and they're going to be adjusting as well from a

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Speaker 1: low base, So that sets up well for Asian effects,

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Speaker 1: I would think for next year. I mean, this year

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Speaker 1: has been really bad for many of Asian currencies, so

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Speaker 1: we expect a bit of a pool back next year,

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Speaker 1: which would bode well for Asian local currency bonds well

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Speaker 1: heading into twenty three. What what's your key risk on

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Speaker 1: the horizon? I think the key risk for for for

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Speaker 1: next year UM would be on the uncertainty that's surrounding

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Speaker 1: the markets. UM. Clearly the policy directions from authorities UM,

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Speaker 1: you know may change, It could be at so some surprises,

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Speaker 1: but I think really the risks if we do have

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Speaker 1: surprises on the growth side and and ull tilt us

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Speaker 1: more into a recession uh severe environment, I think that

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Speaker 1: could set us up a slightly different outlook. Now. The

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Speaker 1: other thing that we'll be looking at for the risk

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Speaker 1: is also potential geo political tensions and the development itself.

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Speaker 1: UM think this year has been one that is causing

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Speaker 1: a lot of consternation on the energy and all prizes UM.

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Speaker 1: So next year again, that could also be one of

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Speaker 1: the reasons that we are looking up and haven buying

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Speaker 1: not only in the US tolerble Treasury is obviously as well.

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Speaker 1: Keang Cheung uh ng U is um Asia Pacific, head

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Speaker 1: of fixed Income at State Street Global Advisors. Our guests

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Speaker 1: here on their break Asia