BlackRock sees no repeat of Asia bond-market rout on Fed taper

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Asian bond markets are unlikely to see a repeat of the rout in the middle of the year when the Federal Reserve eventually tapers stimulus, according to BlackRock (BLK).

The average yield on local-currency debt from the region rose to this year's high of 5.89% on Aug. 29 from 4.42% on May 22, the day the Fed first said it could reduce its $85 billion of monthly bond purchases, J.P. Morgan Chase's GBI-EM Global Diversified Asia Yield to Maturity index shows. The rate was 5.56% on Nov. 29.

“If we look at where we are right now, markets are much more rational in terms of factoring it in,” Joel Kim, Singapore-based head of Asia-Pacific fixed income at BlackRock, which oversaw $4.1 trillion at the end of September, said at a briefing in Singapore. “In the middle of the year, you saw the noise on tapering coincide with a lot of actual tightening expectations being priced into the yield curves.”

Federal Reserve officials said they might reduce stimulus known as quantitative easing “in coming months” as the economy improves, according to minutes of the Oct. 29-30 meeting released on Nov. 20. The U.S. central bank probably won't taper its debt purchases until March, according to a Bloomberg News survey conducted Nov. 8.

BlackRock prefers to invest in short-dated bonds to guard against losses as U.S yields increase, and will be using other funding currencies such as the euro and Japan's yen, rather than dollars, to invest in Asia, Mr. Kim said.