Asia Local Markets Strategy: A squeezy summer

Research evidence excerpt

Asia Local Markets Strategy: A squeezy summer

Arindam Sandilya AC Global Markets Strategy

(65) 6882-7759 03 August 2026 J P M O R G A N

arindam.x.sandilya@jpmorgan.com

EM Asia rates: Stay paid as Asia LY catches

up

Asian rates have surged higher in July again following the resurgence of the

Middle East conflict, helping our LY duration shorts. Figure 1AsianyieldshaverisenagaininJulyafterabriefJuneinterlude shows that MTD yield

moves have been relatively more mellow compared to the shock sell-off in March, given

the understandable reluctance of markets to buy into the alarmist idea of a durable

escalation after the many twists and turns in this saga that have invariably led to some

form of de-escalation following seemingly serious eruptions. There is also some

fundamental justification for this restraint, with our oil analysts flagging that crude

markets are now better adjusted to the idea of re-balancing supply tightness via demand

rationing and hence less prone to building in a large risk premium that eventually forces

demand destruction (The freakonomics of oil, Kaneva). That said, a key point of

difference in the current episode vis-à-vis March is the more protracted surge in US

real yields; adjusted for changes in oil and TIPS, the sell-off in Asian rates over the past

month screens as as a sizeable undershoot (Figure 2Thesel-ofinAsianratesMTDisundershotingUSratesandoilanchors). We entered the Middle East re-

eruption paid rates across the LY complex (UW ThaiGBs in GBI EM, paid 5Y MYR

and TWD NDIRS), and find little reason to disrupt that stance.

The HY vs. LY divide is less stark in this sell-off. The key message of our 2H26 Mid

Year Outlook was that the contours of Asian monetary policymaking would morph from