Global Rates and FX Watch: Postcard from Asia: the three C’s

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Global Rates and FX Watch: Postcard from Asia: the three C’s

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Global Rates and FX Watch

Postcard from Asia: the three C’s

Carry, Concentration and Central bank divergence 10 June 2026

Investors on our trip to Japan, Singapore and mainland China reinforced a broadly Rates and FX

consistent macro narrative centered on persistent inflation risks, and divergent central- Global

bank reaction functions. Three consistent themes emerged in our discussions: Oliver Levingston

FX and Rates Strategist

1. Concentrated trades: Investors have crowded into a few trades: short 10y JGBs, long Merrill Lynch (Hong Kong)

LatAm FX, long US IG & MBS vs USTs. +852oliver.levingston@bofa.com3508 4631

2. Central bank divergence. Short 10y JGBs topped the list but we also saw appetite

to buy Euro and NZ duration, outright or on a cross-market basis vs US. For a list of open trade recommendations

and trade recommendations closed in the

3. Carry trades: carry was a popular theme as we enter the summer months but last 12 months, please see our Global FX

opportunities were scarce. Crowded AUD longs appeared to have been trimmed after weekly and Global Rates Weekly reports.

dovish RBA communications and there was little appetite for EM FX outside commodity

exporters (e.g. BRL, ZAR) given uncertainty around the duration and severity of the oil AONIA = Australian Overnight Index Average

supply shock. In G10 FX, we remain bullish AUD on higher super fund hedge ratios.

APRA = Australian Prudential Regulatory

Exhibit 1: AUD 3m FX hedging cost (-ve = yield pickup) vs AU industry super fund hedge ratios Authority

We expect super fund hedge ratios to rise, data due later this week

3m AUD/USD hedging cost

2.0% Industry super fund listed equities hedge ratio (%, right) 50%

1.0% 40%

0.0% 30%